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Snoozer’s Jolt

The debate was a snooze that changed little. Except maybe one thing. McCain trotted out his proposal to have the government get in the corner of people with bad mortgages, and renegotiate to keep them in their houses. While the pointy-headed media types are working themselves into a lather over “that one,” I’m guessing millions of Americans are quietly thinking about their home values and mortgages. As long as we’re going socialist and shoving chickens in pots in this financial crisis, maybe it makes more sense to bypass the Wall Street middle men and just give that $700 billion* to homeowners to keep them in their houses on Main Street, make those debts good. But what do I know. Like I said, my understanding of high finance is on the Neanderthal level, though at last check, the shamans are pretty much just reading sheep guts.

News and shamanistic trancing babble re the McCain mortgage plan follows. Hey, I’m not the only one wondering why the radio silence. “Provocative idea” deserves “important debate,” says Forbes: 

Right after the debate, the big news has already been glossed over. John McCain, the small-government Republican, supports having the US Treasury buy up troubled mortgages and then renegotiate them so that the homeowners don’t have their homes taken from them. It’s a really provocative idea, especially after we’ve already authorized the Treasury to buy securities made up of mortgages, and so the Treasury, funded by taxpayers, is now in the position of potentially being the creditor that ultimately takes homes from other taxpayers.

There’s an important debate to be had over this issue. If the government uses tax dollars to buy mortgages, doesn’t it owe tax payers the promise that it will do everything it can to keep from seizing their homes? But if the government buys mortgages at a loss so that homeowners can stay in their houses, isn’t that unfair to taxpayers who rent?

* Full proposal via WSJ claims “direct cost of this plan would be roughly $300 billion because the purchase of mortgages would relieve homeowners of ‘negative equity’ in some homes.” I have no idea what that means. However, if $300 billion for the little guy is good, maybe $700 billion is better. Don’t forget the small businesses that are having trouble making payroll in a tight credit environment.

The basic idea and its debate unveiling, via LA Times:

 ”Is it expensive?” McCain asked. “Yes. But we all know, my friends, until we stabilize home values in America, we’re never going to start turning around and creating jobs and fixing the economy.”

McCain’s campaign issued a 1½-page fact sheet to explain his call for the massive federal intervention, which it called the American Homeownership Resurgence Plan. The campaign noted that the $700-billion financial rescue package approved by Congress last week gives the Treasury Department authority to directly buy mortgages, but added, “It may be necessary for Congress to raise the overall borrowing limit.”

Treasury Secretary Henry M. Paulson has given no sign that he would spend any of the money to bail out individual lenders and borrowers. Rather, he has made it clear that he considers it the government’s responsibility to assure the stability of the credit markets.

Bill Burton, a spokesman for the Obama campaign, said the idea was not a new one and noted that the Illinois senator had raised it. On Oct. 1, in a news release, Obama said he intended to “encourage Treasury to study the option of buying individual mortgages like we did successfully in the 1930s.”

McCain has based his presidential bid in part on frequent calls for cuts in government spending and regulation. His housing bailout proposal was a surprise in a debate that could prove a crucial pivot as the race enters its final month. 

 

…

 

According to the outline of McCain’s newest proposal, the federal government would pay borrowers and lenders in full, regardless of how wise or fair the original transaction was. Lenders would be able to remove the bad mortgages from their balance sheets, and borrowers would be able to refinance into government-guaranteed loans. Mortgage holders would have to prove they lived in the home and had good credit at the time of the original loan.

WASHINGTON — Scrambling to repair his image on economic issues, Senator John McCain proposed during Tuesday night’s debate a $300 billion plan authorizing the treasury secretary to buy the mortgages of homeowners in financial trouble and replace them with more affordable loans.

The campaign of Senator Barack Obama quickly countered by saying that the financial rescue plan that President Bush signed into law last week already gave the treasury secretary such power. And, his advisers noted, Mr. Obama recommended such a step in a news conference nearly two weeks ago.

The Obama camp is correct that the new $700 billion bailout of the financial system gives the Treasury the authority to buy troubled mortgages. But the law leaves unclear how the authority is to be used, according to a person who was privy to the recent legislative negotiations between the White House and Congress and who is not affiliated with either campaign.

The mortgage renewal idea actually originated with Senator Hillary Rodham Clinton, said Charlie, a senior adviser to Mr. McCain. And Mrs. Clinton, who proposed the idea in a recent newspaper column, borrowed it from a Depression-era New Deal agency, the Home Owner’s Loan Corporation.

As Mr. McCain’s campaign described his program, it would be available to mortgagors for whom the property is their primary residence, who can prove they were creditworthy when the original loan was made and who made a down payment. “Lenders in these cases must recognize the loss that they’ve already suffered,” a McCain campaign summary said.

Ha. Sounds like McCain stole a bi-partisan march on Obama. Market Watch calls it Paulson/Bush’s idea. OK, but who’s pushing to make it a priority?

Dan Rodricks at the Baltimore Sun slams it as $300 billion worth of socialism. Maybe. But I think that $700 billion train already left the station. He notes that McCain has a history with the mortgage bailout idea at least as far back as last March, although he also seems to think McCain should avoid playing politics in his campaign.

CNN: So which is it, spending freeze or mortgage bailout?

Early in the debate, McCain recommended that the federal government buy up bad mortgages from landowners and replace them with lower cost, fixed-rate mortgages, which he said would help keep Americans in their homes.

… But later in the debate, when asked what sacrifices the American people would need to make to help revive the economy, McCain recommended a “spending freeze.” The Republican nominee said the government should cut wasteful programs and eliminate earmarks.

“We’re going to have to tell the American people that spending is going to have to be cut in America,” McCain said. “And I recommend a spending freeze that except for defense, veterans affairs and some other vital programs, we’ll just have to have an across the board freeze.”

OK, maybe bailing out mortgages is a vital program.

Malkin hates it, consistent with her utter disgust with the bailout from start to finish.

Sydney Morning Herald thinks its a big deal: “McCain Delivers a Mortgage Belter” … sorry, my Strine isn’t good enough to know whether a “belter” is what I think it is. You know, something that belts you. Online Strine authorities seem to be silent on this one. Blairites?

Related:

No sweat: You may be fretting about your mortgage but bailed-out AIG execs chilled at a $440,000 spa retreat. 

Stocks up tentatively on fed rate cut.

Who the heck is paying for that bailout, anyway? Not most of us, says Steven Malanga at RealClearMarkets.

That’s because a rapidly increasing percentage of U.S. households legally pay no income taxes, and many others pay so little in taxes that they already get back more from the federal government in services than they send to Washington. The number of taxpayers who generate a surplus for the federal government—that is, pay more in taxes than they receive in services—is small and shrinking, which is why the only way that the folks on Main Street will pay for this bailout will be if Main Street is where the mansions are in your town.

Topics: money, pols

  Posted by Jules Crittenden at 10:04 am on Wednesday, October 8, 2008

5 Responses to “Snoozer’s Jolt”

1. Fatty Bolger Says:
   October 8th, 2008 at 12:07 pm

   I don’t like the plan, mainly because, like the bailout, it would still have to get through Congress - and you know that isn’t happening unless the pigs at the trough get their share (and then some).

   That was some slick politicking, though, attributing the idea to Hillary.

2. mwl Says:
   October 8th, 2008 at 12:14 pm

   I believe this was a grievous mistake on McCain’s part. Republicans should not be in the business of handing out benefits in exchange for votes; that’s the Democrats’ game, and they’re better at it.

   What the country needs at this time is a leader with the stones to look the American people in the eye and say: “There was a housing bubble. It burst, as market bubbles always do, and many Americans now owe more on their homes than they can recoup by selling them. That’s unfortunate, but it’s not a problem for the United States government to solve. The problems that the government needs to solve are to reform the nation’s financial infrastructure, and to rethink the misguided policies which led to inflating the housing bubble in the first place.”

   Unfortunately, John McCain is not that leader. Nor is Barack Obama, who can sit back and smile while McCain digs his own grave. And Bush? I don’t know whether to laugh or cry.

   People need to get away from the idea that the government is your mom. It’s not there to kiss all of your boo-boos and tuck you in at night. If you’re an adult, act like one! Do your due diligence! Meet your obligations! Pay your bills! Or suffer the consequences!

3. RebeccaH Says:
   October 8th, 2008 at 1:22 pm

   None of this crap benefits this taxpayer, because we bank at a credit union and a small-town bank that do not make high-risk home loans. All we’re going to get out of it is an unpleasant screwing.

4. David M Says:
   October 9th, 2008 at 10:57 am

   The Thunder Run has linked to this post in the - Web Reconnaissance for 10/09/2008 A short recon of what’s out there that might draw your attention, updated throughout the day…so check back often.

5. Michael Lonie Says:
   October 12th, 2008 at 9:40 pm

   The key thing for the government to do is unstick the credit markets. Credit needs to flow again to provide short-term capital to businesses, otherwise businesses will have to fire workers, forego buying inventory, and be unable to extend credit to customers. If the credit freeze isn’t thawed, and that soon, we will fall into a depression. Whether or not the bailout will accomplish ths I am not sure. Continued lack of credit for businesses and the concommittent rise in unemployment as businesses pull back in order to survive will make a lot more people unable to pay their mortgage payments than are in that position now.

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