Tonight John McCain announced to the world an asinine plan in which the US Treasury would buy up all the bad mortgages in the country and forgive the home owners the portion of their debt that they have lost as their home value went down. This may sound OK at first, but let's see if it even passes the common sense test.
First, how he described the alleged plan: "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 values of those homes — and let people be able to make those payments and stay in their homes."
Second his claim of exclusivity: "It's my proposal, It's not Senator Obama's proposal. It's not President Bush's proposal."
I call Bull Shit on that one.
At a news conference on Sept. 24, Obama said, "we should consider giving the government the authority to purchase mortgages directly instead of simply purchasing mortgage-backed securities." Several days later, in a news release, he said he would "encourage Treasury to study the option of buying individual mortgages like we did successfully in the 1930s." Hmmm, sounds vaguely familiar, doesn't it?
It's a stupid and dangerous plan, and here's why.
First, it's stupid because it absolves parties of their bad and potentially unethical actions. I'm not just talking about those darned 'predatory lenders', but also the whopping 25% of sub-prime applicants that LIED and inflated their income by at least 50% to get the loan. That's 25% of about 1.3 trillion dollars in outstanding sub prime paper that is or will definitely be in default. Which brings me to my next point.
Stupid, part II. 300 Billion dollars will not go nearly far enough at the final destination (homeowners), but could help a lot at the institutional level. Government dollars would provide enough liquidity for investors to feel they can invest, thus leveraging the money. The payback from corporate borrowers would come with interest, thus giving the taxpayers a return on investment.
On the other hand, this $300 billion would be gone in about a year if they did nothing but buy up sub prime mortgages that are going into default. At the end of that time, the government would be holding mortgages worth a lot less than $300 billion due to forgiven debt, further defaults, and further depressed prices. So, if the government handles this directly, they will need to capitalize this money themselves by selling bonds. The size of this effort will require a new government entity, and I don't believe for a second that it would go away when the job is done.
The dangerous part -it will further depress home prices, possibly severely. What will a great many of these people do as soon as they can break even on their mortgage? Sell! What happens when people sell their homes at a reduced rate? Your home price goes down as well.
The talk of the success of this type of bailout during the Great Depression is naive of history and economics. First, this current crisis has enormously devastating potential, but as yet is not even 1/10th as bad as the Great Depression was when this legislation was enacted. The current economy still has enough liquidity for these homeowners to sell once they are bailed out, that economy didn't. Second, the nation's economy was agriculture and industrial based in the 1930's, a completely different animal. Many of the homeowners who were aided were farmers whose income was tied to their land and virtually all homeowners who still had an income were tied to their location for their employment, and therefore were unlikely to sell. These conditions just don't exist today.
This is a good review of the Home Owners' Loan Act of 1933:
http://www.washingtonpost.com/wp-dyn/content/article/2008/03/13/AR2008031303174.html
Tuesday, October 7, 2008
Bush's twin sister?
Well today I decided to start this blog because I have a lot to talk (rail) about and no one to talk to (offend).
It also just so happens that tonight I watched the second presidential debate (when is Lost starting?), which gave me at least one more thing to opine about. That thing would be the asinine plan McCain announced in which the US Treasury would buy up all the bad mortgages in the country and forgive the home owners the portion of their debt that they have lost as their home value went down. I'll get back to that in a future post.
First, I want to make a couple of general observations about this political season, and the candidates.
Who will I vote for? I may vote for Obama, if McCain appears to have a chance in hell of winning, which I think he will not. Obama is far from my first choice, but I do think he will be competent and reasonable, and probably keep us from getting into even more trouble with the rest of the world.
As a Libertarian, I will vote for my party if the gap in the leading candidates is large enough for me to feel comfortable. I would really like to see some viable third party candidates in major elections because I think our two major parties mostly suck.
I've heard several people claiming to be Libertarians actually say they were voting for McCain. I'm appalled and here's why:
- McCain has publicly stated on the Don Imus show, "I would rather have a clean government than one where 'quote' First Amendment rights are being respected, that has become corrupt. If I had my choice, I'd rather have the clean government." To this end, he cosponsored the McCain Feingold Act legislation that, contra-constitution, allows government bureaucrats (FEC) to regulate free speech by third parties during pre-election time.
- McCain said of the decision by the Supreme Court to grant habeas corpus rights to detainees at Guantanamo Bay Cuba, "The United States Supreme Court yesterday rendered a decision which I think is one of the worst decisions in the history of this country". 'nuff said.
- McCain has stated that he would appoint Supreme Court justices based on their willingness to overturn a previous Supreme Court decision (Roe v Wade). This is the worst possible way to pick a new Supreme Court justice and and subverts the duty the President has to pick someone for this lifetime appointment based on their character and credentials, not based on his partisan agenda.
There is more, but the point is, while his opponent will likely expand government in a Liberal fashion, McCain will subvert the US Constitution and human rights even further than the Bush administration. Any damage done by Obama should be reversible, McCain's damage may not be. I also believe Obama will do a good job with our foreign policy and raising our stature with the rest of the world, while McCain will continue our slide and spend us into oblivion through further preemptive war efforts (for Mrs. Palin- that's the Bush Doctrine).
Another important consideration is the choice of running mate. Obama has chosen an intelligent, experienced colleague. McCain has chosen an lying idiot with no relevant experience. She was Mayor of a town of less than 10,000 people, and Governor of our 47th largest state with 680,000 residents. That's less than half the population of Dallas proper. Despite having a degree in communications and journalism, she can't put together a coherent sentence without reading it from a cue card. If Sarah Palin were to become our President, that would be a travesty.
Palin reminds me of one of those early computer artificial intelligence simulators. In interviews, her answers are almost relevant to the question; but the way she strings together random talking points, uses folksy colloquialisms, winks, nods, and misspeaks several times per sentence tips you off that something's not right. Combine that with her policy viewpoints, and it makes you wonder if she's Bush's long lost twin sister.
It also just so happens that tonight I watched the second presidential debate (when is Lost starting?), which gave me at least one more thing to opine about. That thing would be the asinine plan McCain announced in which the US Treasury would buy up all the bad mortgages in the country and forgive the home owners the portion of their debt that they have lost as their home value went down. I'll get back to that in a future post.
First, I want to make a couple of general observations about this political season, and the candidates.
Who will I vote for? I may vote for Obama, if McCain appears to have a chance in hell of winning, which I think he will not. Obama is far from my first choice, but I do think he will be competent and reasonable, and probably keep us from getting into even more trouble with the rest of the world.
As a Libertarian, I will vote for my party if the gap in the leading candidates is large enough for me to feel comfortable. I would really like to see some viable third party candidates in major elections because I think our two major parties mostly suck.
I've heard several people claiming to be Libertarians actually say they were voting for McCain. I'm appalled and here's why:
- McCain has publicly stated on the Don Imus show, "I would rather have a clean government than one where 'quote' First Amendment rights are being respected, that has become corrupt. If I had my choice, I'd rather have the clean government." To this end, he cosponsored the McCain Feingold Act legislation that, contra-constitution, allows government bureaucrats (FEC) to regulate free speech by third parties during pre-election time.
- McCain said of the decision by the Supreme Court to grant habeas corpus rights to detainees at Guantanamo Bay Cuba, "The United States Supreme Court yesterday rendered a decision which I think is one of the worst decisions in the history of this country". 'nuff said.
- McCain has stated that he would appoint Supreme Court justices based on their willingness to overturn a previous Supreme Court decision (Roe v Wade). This is the worst possible way to pick a new Supreme Court justice and and subverts the duty the President has to pick someone for this lifetime appointment based on their character and credentials, not based on his partisan agenda.
There is more, but the point is, while his opponent will likely expand government in a Liberal fashion, McCain will subvert the US Constitution and human rights even further than the Bush administration. Any damage done by Obama should be reversible, McCain's damage may not be. I also believe Obama will do a good job with our foreign policy and raising our stature with the rest of the world, while McCain will continue our slide and spend us into oblivion through further preemptive war efforts (for Mrs. Palin- that's the Bush Doctrine).
Another important consideration is the choice of running mate. Obama has chosen an intelligent, experienced colleague. McCain has chosen an lying idiot with no relevant experience. She was Mayor of a town of less than 10,000 people, and Governor of our 47th largest state with 680,000 residents. That's less than half the population of Dallas proper. Despite having a degree in communications and journalism, she can't put together a coherent sentence without reading it from a cue card. If Sarah Palin were to become our President, that would be a travesty.
Palin reminds me of one of those early computer artificial intelligence simulators. In interviews, her answers are almost relevant to the question; but the way she strings together random talking points, uses folksy colloquialisms, winks, nods, and misspeaks several times per sentence tips you off that something's not right. Combine that with her policy viewpoints, and it makes you wonder if she's Bush's long lost twin sister.
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