"The government would buy the existing troubled loans at face value -- absorbing the haircut itself -- and the Federal Housing Administration would issue a new, federally guaranteed 30-year fixed-rate loan, based on the property's present value, at a "manageable" interest rate, the McCain camp said."
WSJ, 10/9/2007
The idea is based on Martin Feldstein's proposal, which would lend homeowners with negative equity 20% of their principal at government rates on their personal credit. This would give them an incentive to keep the house, and reduce their interest payments, without reducing their total debt. I'm not sure it's a great idea, and I wonder how aggressively politicians would enforce those personal notes, but it doesn't give the homeowners a pass on overextending themselves.
McCain would. Homeowners here get government funded forgiveness of excess debt. I haven't seen any suggestion that the government would get a position in any capital appreciation of the house. This might reduce foreclosures and thus downward pressure on housing prices. But that pressure is only temporary anyway -- the long term value of mortgages is driven by the long-term value of the house, and that is driven by real estate economics which are temporarily distorted by the foreclosures. We don't know the "right" level for housing prices, and probably won't for a while -- if they go lower still, are we going fund a second round of principal reductions?
I can't support this. It's a huge incentive to irresponsible financial behavior, added to existing government incentives in health care and disaster relief, and sets an ominous precedent for handling coming problems with retirement savings. Even if it did help with the current situation, we still might well be better off suffering a recession than telling people the government will bail out their stupid decisions. And I certainly don't want to do this without a lot more thought McCain has given this, and a lot less suspicion of political motivation.
McCain is really reaching here. Some of this is panic, some pandering. I don't think he understands economics sufficiently to understand the moral hazard problems of this, or how they differ from those in the proposals of Feldstein and others. But whether its errors come from ignorance or ambition, I can't agree to something this bad.
Thursday, October 9, 2008
Too Busy, Too Foolish
"But health insurance is complicated and scary; most people don't have the time or expertise necessary to make wise choices. They rely on their employers to make sure they're getting a good deal — and to fight for them if the insurance companies try to cheat them. And with many employers slouching away from that responsibility, the public seems ready to turn to the government for protection. "
-- Joe Klein, Time 10/9/2008
I can't imagine a better description of the welfare state's infantilization of the public. If people won't take responsibility for their own health, just exactly are they responsible for? A person who won't take care of themselves has no one to blame but themself when they are told what to do and what to think.
And I'd add that health care's unavoidable complications are compounded by regulatory requirements like the Mental Health Parity Act that Congress just added, in an afterthought, to the bailout bill.
And just what exactly is someone to do if the government doesn't make wise choices for them, or refuses to fight for them? What alternatives will they have, what resources can they bring to bear?
A healthy society raises people who take the time to take of themselves, and can develop the expertise they need to do so. We should help those few that could never manage for themselves (though it's necessary to add that our moral responsibility doesn't imply their political right). That's what conservatism ought to be about. It's failing because our "conservative" politicians are too interested in incumbency to take on a tough case.
And I'm afraid that McCain, with his proposal to write down overextended borrowers on the federal dime, is hardly more principled.
-- Joe Klein, Time 10/9/2008
I can't imagine a better description of the welfare state's infantilization of the public. If people won't take responsibility for their own health, just exactly are they responsible for? A person who won't take care of themselves has no one to blame but themself when they are told what to do and what to think.
And I'd add that health care's unavoidable complications are compounded by regulatory requirements like the Mental Health Parity Act that Congress just added, in an afterthought, to the bailout bill.
And just what exactly is someone to do if the government doesn't make wise choices for them, or refuses to fight for them? What alternatives will they have, what resources can they bring to bear?
A healthy society raises people who take the time to take of themselves, and can develop the expertise they need to do so. We should help those few that could never manage for themselves (though it's necessary to add that our moral responsibility doesn't imply their political right). That's what conservatism ought to be about. It's failing because our "conservative" politicians are too interested in incumbency to take on a tough case.
And I'm afraid that McCain, with his proposal to write down overextended borrowers on the federal dime, is hardly more principled.
Wednesday, October 8, 2008
Debate
Not a good night for McCain. Why exactly is it a good idea for me and my fellow taxpayers to help our overextending neighbors pay for houses that were always beyond their means? Yes, he wants to put a floor under housing prices -- but price setting is what a government does worst.
It's a shame that McCain didn't realize years ago that political power is about economics, and gone to school on the subject. He's so good, but he lacks any central and convincing message on the economy, or explanation of how Washington's narcissism threatens it.
Obama -- he's like R.E.M. The first five minutes sound great, but the more you listen, the more every answer sounds the same, and then you wonder why that is, and then you start to realize the whole thing is just one set of talking points after another. I don't hear any serious effort to engage any subject, and he treats every topic as an opportunity to sound prepared and thoughtful rather than communicate his own philosophy. I find this kind of thing maddening, because there is absolutely no chance of convincing a guy like this of anything, and very little hope of learning anything from him.
I'm worried the next four years are going to be pretty bad.
It's a shame that McCain didn't realize years ago that political power is about economics, and gone to school on the subject. He's so good, but he lacks any central and convincing message on the economy, or explanation of how Washington's narcissism threatens it.
Obama -- he's like R.E.M. The first five minutes sound great, but the more you listen, the more every answer sounds the same, and then you wonder why that is, and then you start to realize the whole thing is just one set of talking points after another. I don't hear any serious effort to engage any subject, and he treats every topic as an opportunity to sound prepared and thoughtful rather than communicate his own philosophy. I find this kind of thing maddening, because there is absolutely no chance of convincing a guy like this of anything, and very little hope of learning anything from him.
I'm worried the next four years are going to be pretty bad.
Tuesday, October 7, 2008
Ayers
For all the left-wing blather about "fascism", this country is fundamentally safe from political violence precisely because of its disgust at people like Bill Ayers. No serious person would ever join up with a craven coward like that precisely because they understand that good arguments are enough in this country, and because no one wants to live in a country where politics are settled by guns. Most serious people would be embarrassed to even be associated with him.
Barack Obama doesn't seem to share that revulsion. That's a problem.
Barack Obama doesn't seem to share that revulsion. That's a problem.
Friday, October 3, 2008
Shell Game
Chairman Frank is happily reassuring his colleagues that the bill gives Treasury the power to buy mortgages and reset their principal and interest rates, and that the Secretary has been told that the bill is passed with the understanding he will do so.
It would be hardly surprising if any gains the fund makes on some investments were diverted to marking down the principal on other mortgage investments. If there are losses, those go to the taxpayer. If there are gains, they will go to Democratic constituencies.
It's a remarkably bad bill, and Chairman Frank is promising he'll be back to work on regulation next year. Certainly the Democrats don't sound unhappy that this is passing. It's depressing to see so little understanding of our financial system, and so little resistance by confused members against the social pressure for this.
It's a landmark event, the beginning of a new era of Democratic leadership and progressive policies.
It would be hardly surprising if any gains the fund makes on some investments were diverted to marking down the principal on other mortgage investments. If there are losses, those go to the taxpayer. If there are gains, they will go to Democratic constituencies.
It's a remarkably bad bill, and Chairman Frank is promising he'll be back to work on regulation next year. Certainly the Democrats don't sound unhappy that this is passing. It's depressing to see so little understanding of our financial system, and so little resistance by confused members against the social pressure for this.
It's a landmark event, the beginning of a new era of Democratic leadership and progressive policies.
Wednesday, October 1, 2008
Second Verse, Same As The First
Everyone is agreed that the House will pass the next bill. They have to do something, right? They're hearing from their districts, and the new bill has some tax reductions and the FDIC deposit insurance increase, and they'll do the right thing.
Except, I didn't hear from any House Republicans until this evening, and Roy Blount wasn't so convincing. The only yes vote they could get to discuss it on McNeil was Ray LaHood, who is retiring. The Blue Dogs won't like the tax increases without offsets, and the growing lists of special items is making it harder to regard the matter as truly that serious.
I've noticed that CNBC et al have got the memo that this is a "rescue" rather than a "bailout". Dissenting opinions have vanished from the airwaves, and the Great and the Wise are out in force insisting this is the only way. But no one can explain how this works. Buffet was on Rose tonight saying that bought at market, the government will make money here -- but Bernanke and Paulson have said they will buy above market.
Painting the opposition as uninformed and ideological won't necessarily help. Members of the House minority don't get a lot of respect in the first place -- why are House Republicans going to care about the opinions of people who won't talk to them in any case? They may even welcome the opportunity to show their independence from the Establishment. I'm by no means convinced that this bill passes the House.
Except, I didn't hear from any House Republicans until this evening, and Roy Blount wasn't so convincing. The only yes vote they could get to discuss it on McNeil was Ray LaHood, who is retiring. The Blue Dogs won't like the tax increases without offsets, and the growing lists of special items is making it harder to regard the matter as truly that serious.
I've noticed that CNBC et al have got the memo that this is a "rescue" rather than a "bailout". Dissenting opinions have vanished from the airwaves, and the Great and the Wise are out in force insisting this is the only way. But no one can explain how this works. Buffet was on Rose tonight saying that bought at market, the government will make money here -- but Bernanke and Paulson have said they will buy above market.
Painting the opposition as uninformed and ideological won't necessarily help. Members of the House minority don't get a lot of respect in the first place -- why are House Republicans going to care about the opinions of people who won't talk to them in any case? They may even welcome the opportunity to show their independence from the Establishment. I'm by no means convinced that this bill passes the House.
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