Matt Yglesias

McCain’s Lender Bailout

John McCain does public policy maverick-style:

The document posted and e-mailed by the McCain campaign on Tuesday night says at the end of its first full paragraph: “Lenders in these cases must recognize the loss that they’ve already suffered.”

So the government would buy the mortgages at a discounted rate, reflecting the declining value of the mortgage paper.

But when McCain reissued the document on Wednesday, that sentence was missing, to the dismay of many conservatives.

That would mean the U.S. would pay face value for the troubled documents, which was the main reason Sen. Barack Obama (D-Ill.) gave for opposing the plan.

This transforms would could be a win-win measure to prevent mass evictions and a total collapse of housing prices into a strangely unmotivated subsidy to the people who issued bad loans. There’s no need to do it this way; it would be cheaper and fairer to focus public expenditures on recapitalizing financial institutions in need of aid, while addressing the foreclosure issue by “haircutting” the lenders. McCain has, in the past, stood with fellow conservatives in opposing mortgage-rewrite efforts. He seems to have changed his mind once he thought up a way to help out homeowners that manages to let the bad lenders avoid shouldering any of the burdens.