Musings

Cool Hand at the Tiller

In an otherwise fairly content-free performance, John McCain had this to say in tonight’s debate

As president of the United States, Alan, I would order the secretary of the treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes – at the diminished value of those homes and let people be able to make those – be able to make those payments and stay in their homes.

Hmmm….

Maybe one of my readers can help me out here, but this sound a heckuva lot like the HOPE for Homeowners Act of 2008. What’s the difference between this proposal and the legislation John McCain voted against (neither McCain nor Obama were present for the vote) that was signed into law by the President on July 30, 2008?

Update (10/8/2008):

Ah… my faith in the fundamental foolishness of John McCain is restored. His plan for distressed mortgages is not a clone of the already-enacted Dodd-Frank plan (which took effect Oct 1). It’s something much, much worse.

Victoria McGrain:

Details provided to reporters by senior adviser Doug Holtz-Eakin Wednesday morning make one thing clear: Taxpayers would directly pick up the tab for the difference in cost between a homeowner’s old, too-expensive mortgage and the cheaper one provided by the government.

This is something that congressional lawmakers, led by House Financial Services Chairman Barney Frank (D-Mass.) specifically avoided when they crafted their own landmark housing bill, which became law July 31 and took effect Oct. 1.

Congress’ bill — which Holtz-Eakin says provides at least part of the authority McCain would need to carry out his plan — provided a $300 billion program to help distressed borrowers refinance into cheaper Federal Housing Authority mortgages. But to participate, lenders and mortgage investors would have to reduce the mortgage principal, thus taking a loss on the loan.

Lawmakers argued that the “haircut” would protect taxpayers and mitigate against so-called “moral hazard” that government intervention would encourage lenders to believe they’ll always be rescued from their bad business decisions. To make sure homeowners didn’t get off scott free either, the law requires them to share any future profits from the resale of their homes with the government.

“Clearly we face the trade off that we would in fact be taking the negative equity position and putting it on the taxpayers books instead of putting it on the private lenders books or the homeowners books,” Holtz-Eakin told Politico. “We think the balance of risk has shifted to the point where this is the way to go.”

Or, as Brad Delong, more pithily, puts it:

The McCain plan is:

• Take $300 billion.
• Pay double current market value to banks that have troubled mortgages on their books, thus:
  • Give a present of $100 billion to the bankers who made the loans.
  • Acquire and regularize the mortgages of only two-thirds as many homeowners as could have been accomplished if the $300 billion were invested wisely.

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.

Having figured that out, I can breath a sigh of relief, and go back to watching the markets crumble.