Thursday, October 9, 2008

McCain Economics Plan: F-

If you watched the debate, you should have noticed that Maverick McCain attempted to use it as a mechanism to bolster the illusion that he knows how to fix the country's woes.
He said that as President he would order the Treasury Secretary to "immediately buy up the bad home loan mortgages in America and renegotiate them at the new value of those loans."
The mortgage buy-up plan that he gleefully announced was not only rash and ill-advised, but it would reward the lending institutions and homeowners who clearly got caught taking on more risk than should have been allowed. It would generously buy the loans from the financial institutions at the full-financed value (rewarding them with full value of the loan). It would force the refinancing of the loan at the new (lower) value of the property at lower interest rates, rewarding the risk-taking home purchasers as well. The true losers in McCain's plan would be U.S. Taxpayers, as they would be on the hook for the difference between purchase price and refinance price. McCain is proposing that the government should buy, for example, a loan in which the borrower owes $250K on a home that's now worth only $200K. He'd then give the bank $250K (making the bank whole), but would receive back only $200K in the form of a renotiated mortgage document from the homeowner (at a longer term and lower interest rate). Both the banks and the home owners make out on the deal. However, we, as tax payers, would lose any opportunity to collect the missing $50K in that transaction and many others that would take place.

Alan Blinder, a former vice chairman of the Board of Governors of the Federal Reserve, said he and others have supported the government buying loans at a discount and then restructuring them. however, buying them at face value is a dramatic departure from anything they've proposed and would be an "outright loss for the taxpayer."

I've worked all my life. I saved for a downpayment. I used that downpayment to be able to take out a loan for a home ... a loan that was within my ability to repay. As taxpayers, we're now faced with a financial crisis caused not just by greed and poor business practices of financial institutions, but one contributed to by people who tried to live a life well above their means and got caught with their hands in the cookie jar when the market took a downturn.

Many didn't play by the rules, in that they financed 100% of the purchase price using more than one loan ... and then compounded that mistake by using at least one interest-only loan as part of that deal. They were betting that prices would continue rising and that they'd make a bundle of money in 2-3 years when they sold their purchase just before bigger payment requirements would kick in. Well, that didn't happen. The market declined, prices dropped and now their home isn't worth what they financed it for and they now find themselves responsible for the equivalent of what might be considered a dead horse. I may live in Nevada, where gambling activities are not only legal and heavily promoted, but that doesn't mean I should have to pay for everybody else's bad habits or bad streaks of luck.

People who didn't play by the rules expect the rest of the nation to bail them out. To do that, it's going to take money this nation doesn't have, money we'll have to borrow from China ... because, let's face it, our nation is broke. If it hasn't sunk in yet, we have a national debt because, Congress has cut taxes without cutting spending. Because they cut taxes, we no longer have sufficient funds to pay our nation's bills (budget deficits) and we're regularly borrowing money from governments like China and Japan (increasing the national debt). Now we're going to borrow even more. One of these days, they're gonna say 'No, no more!' Then what are we going to do?

McCain and his deregulatory and economic policies are definitely not the answer to our nation's woes. As a nation, we're going to need to tighten our belt, eliminate discretionary spending, get out of Iraq and spend what money we do have much more wisely on programs that support energy independence and U.S. economic growth. If we don't do that, the economic downturn we'll experience could be the end of our nation as we've known it and could send the U.S. spiralling down into third world status.

Related Links:

Mr. McCain's Mortgage Offer
The Note: 'A Simple Mistake'?
McCain Plan Draws Doubts From Experts On Mortgages
Unclog the Cash Pipe - Anyone Know a Good Plumber?

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