The McCain Bailout Plan
| Wed Oct. 8, 2008 11:34 AM PDT
THE McCAIN BAILOUT PLAN....If Brad DeLong is right, John McCain's new plan for bailing out homeowners is actually a bailout of the banks who originated the housing bubble's most reckless loans: option ARMs, teaser packages, NINJAs, no-docs, and all the rest. Basically, McCain plans to buy up bad mortgages at full face value and then restructure them into cheaper FHA mortgages. Homeowners are indeed helped, but the banks who made the loans are paid off for the full amount of the loan.
Roughly speaking, Brad figures that out of the $300 billion McCain wants to dedicate to his program, a full third would go to mortgage lenders. "It means that John McCain wants to give $100 billion of taxpayers' money to America's worst-behaving mortgage financiers." This is worse than the Paulson bailout approach and far worse than recapitalizing troubled banks, as many liberals think we ought to do. Brad again:
There's a big difference here: Democrats want to prevent depression and support the financial markets by investing taxpayer money in banks with troubled assets. Republicans want to give taxpayers money away to the shareholders and managers of banks with troubled assets.
I would say that this is unbelievable, but I do believe it.
Somebody needs to ask McCain some very hard questions about the details of this plan.
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"Somebody needs to ask McCain some very hard questions about the details of this plan."
I'm not really sure that details even exist. But let's assume that they do. Is John McCain really the person you want to ask about it? The guy can barely remember the last sentence he spoke. Let's see if Doug can explain it first.
Maybe the bankruptcy approach is best. Any other one has real problems with the "Who is eligible" question, and almost any approach will reward many of the unworthy. On a case-by-case basis, in serious enough situations to lead people into bankruptcy, bankruptcy judges could make adjustments, however. But maybe that wouldn't do much good on a broad scale.
If this is McCain's plan to bailout homeowners, what is his secret plan to get Bin Laden? I think Bush-Bernacke-Paulson already have a plan to get Bin Laden: they're crashing the market so Bin Laden's investments will tank, and he'll panic and jump to his death (and maybe 72 virgins?).
I don't understand. If we can buy all the bad mortgages for 300 billion why are we giving 700 billion to the banks and lending institutions? I think it would take trillions of dollars to buy up these loans if it is going to make a difference.
My fellow prisoners, are you trying to tell me that McCain's latest plan wasn't thought through? Say it ain't so, Joe!
McCain is more and more coming to resemble Black Adder's idiot sidekick Baldrick, who says "I have a cunning plan" before coming up with yet another lunatic idea.
Apparently John McCain doesn't give a flyin' fig about homeowners.
The HOPE law restructures mortgages to help people stay in the house they own. It isn't for 2nd houses. It also is entirely voluntary, so it requires both lender and homeowner to agree to do it. The mortgage lender has to write-down some percentage of the mortgage (thus bringing it more in line with current housing values) and the homeowner has to give up some part of any upside if they sell at a profit.
The 'bailout/rescue' gives Treasury a lot of flexibility in choosing what to buy and it's focus is more on rescuing firms with mortgage backed securities.
If there is need for more than the HOPE program, and there might be, then it would probably be an emergency kind of measure to given government more leeway to force the purchase of or restructuring of mortgages, rather than leaving it to the discretion of lender & homeowner.
Other details of how to restructure are pretty flexible right now, but reading the blogs it will probably be pretty clear there are a wide variety of ways it can be done and one or two, such as keeping mortgage at face value but reducing payments, should stand out as OBVIOUS best choices.
I just read a RawStory.com article on the UK 'bailout' and theirs is based on government purchase of 'preference stocks' and more low-interest loans to add liquidity and government guarantees of bank-to-bank loans to ensure they have the needed confidence to go ahead with loaning the money they have. The article didn't include anything on mortgages, so my guess is they'll sell 'em to our Treasury if they can.
Our mess is more complicated because we created it and we have more of it, including people actually living in the houses.
Go away John McCain. Nobody who isn't a racist wants to hear from you any more.
Mr.McCain relies on the information he receives from Phil Gramm,a decidedly prejudiced cheerleader of complete deregulation of the banking and insurance industries.
This is exactly how we got into this mess in the first place and they both,McCain and Gramm,are guilty of progressing this agenda for the benefit of the wealthy.They want to unleash their patrons to do as they see fit with your money,no holds barred.
McCain said he was suspending his campaign to remedy the financial situation and then said absolutely nothing,not a word.He actually wanted to throw a wrench into the works and did so with the help of John Bohner of Ohio and several other ultra-sensitive neo-cons saying,it hurt to hear the partisan words of Speaker Pelosi.
The words of the speaker rang true to the American people,and to the neo-cons that deregulation by their party and these very people are the root cause of the financial meltdown.
The truth America must learn is,capitalism and the Reagan philosophy of trickle-down economics has failed miserably and now,unfortunately, we must all pay the piper whether we were benefactors of this Ponzi scheme or not.
To put this slightly differently: There's been a huge loss in home values. It's shrunk bank capitalizations and has been distributed through financial instruments world-wide because of slicing and dicing and leverage.
Eventually somebody, somewhere, has to eat that loss. Who?
The Swedes and Brits are trying to re-capitalize banks so they don't eat all the loss and take the world's money supplies down with them.
Paulson's plan apparently was to sequester the paper that's riddled with these losses and replace a lot of it with genuine US assets so they can continue to circulate as money while banks retrench. He was stampeded into this when his buddies reacted so badly to letting Lehman eat its share of the loss.
McCain's "plan" apparently is to insure anybody and everybody who holds *any* part of these mortgages so they don't eat the loss.
Everywhere you look, no matter which plans we're talking about, it sure looks like the taxpayers eat it. Who's really being honest about that? Anyone?
The lesson has to be that our money supply is too important to everybody to let private interests do what they want with it. An expensive lesson we learned a bunch of times in the 19th century and a couple of times in the 20th, and need to defend.
Hmmm. I think this is very analogous to Bush's argument about not negotiating with Iran and other "bad actors". By negotiating with them, you truly are rewarding bad behavior. Similarly, by buying the mortgages at face value, you're rewarding bad behavior by the lenders. But in both cases, we need to get off our high horse and do what it takes to make things better.
Yes, the lenders have made a lot of money through abusive lending practices. Now the bubble has burst and exposed that these were lousy loans and a bad business risk. That doesn't change that these are the very same lenders that we need to have lending again so there is a credit market in the country. Until these lenders are capitalized at a level that allows them to lend, there IS NO CREDIT MARKET. If you penalize the lenders and make them take a "haircut" (nice sounding term that implies that there's no real harm done), they won't have sufficient capital to support making new loans.
Look, I realize that sucks. But I don't see how you come up with any kind of "soft landing" here. Either you recapitalize the lenders enough that they can loan more, or you don't have the credit markets we had in the past.
I can see using other punitive measures to discourage this kind of behavior in the future. I would say that firing all the executives at companies that are recapitalized, with no severance packages, and even preventing them from working in the industry again for X years (just like we have done with other executives who caused financial problems, like Boesky & Milken), is perfectly acceptable. If they want to fight that, fine. The legal fees for that kind of a court battle would bankrupt them personally.
I think the reality here is that we don't have very effective recourse after the fact. You have to have regulatory arms with enough clout to set strong lending criterion, and financial laws in place that prevent abusive practices to start with. But now, we need to hold our noses and clean the shit up.
