The idiocy of McCain's Mortgage Bailout

The idiocy of McCain's Mortgage Bailout (Full Version)

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samboct -> The idiocy of McCain's Mortgage Bailout (10/22/2008 5:05:30 PM)
The more I've thought about this proposal which I first heard in the last debate- the less I like it. IIRC- McCain has proposed that the government should be buying up "toxic debt" to let mortgage holders stay in their houses. Well, this is problematic for a number of reasons- 1) What exactly is the value of the house? 2) Who figures it out? 3) Why should some homeowners get federal assistance and others get the shaft? If you bought too large a house for your budget, the government comes along, bails you out, and your neighbor who was prudent gets zip. Here's my take on the housing crunch- 1) The mortgage debacle bears a large resemblance to the fall of Enron. We won't go into who were the major supporters of that company. 2) The whole thing is NOT that complicated- its just been made arbitrarily confusing to make sure the fundamentals of the business were obscured- like Enron- which had a valuation many times the size of the market it was supposedly trading in. 3) Mortgages got sliced and diced- the top stuff was AAA, the bottom stuff was junk. What did the investment banks want? The top stuff which was AAA? Oh, how naive of you! Nooo, AAA stuff will only return the value of the mortgage, plus maybe a smidge- there's no risk involved. The junk, on the other hand- well, since there's risk, there has to be reward- so all these financial hotshots plunged in. The size of the bets riding on the market are far larger than the market itself, and we're seeing companies go under- as well they should. 4) The housing market- before the speculative bubble which is similar to the dot com bust or the tulip bust, or any other speculation is really tied to wages. I think the old conservative bankers approach to loaning money for a house was that it had to be within 2x wages. Well, if wages have been stagnant over the past 7 years- housing prices need to have been stagnant as well. That they haven't shows speculation and people are going to get burned. On the other hand- this also provides a floor for how low the housing market can go. People will need a place to live- and if we start growing wages, then housing prices can go up. But McCain's plan to buy up mortgages is like arguing with the tide- no matter what laws you pass, the tide is still going to come in- as King Canute found to his dismay. Sam

corysub -> RE: The idiocy of McCain's Mortgage Bailout (10/22/2008 6:13:23 PM)
I am a supporter of John McCain vs Barack Obama. However, I agree totally with you on this one. There are a few things that John has sponsored in the past that I have had sharp disagreement...and this adds to the list. However, it's the."lesser of two evils" year for my vote...and Obama is just too dangerous a guy for me to switch because of another dumb idea from McCain. I can live with dumb platform ideas and figure it will never get through a Pelosi/Reid Congress.

samboct -> RE: The idiocy of McCain's Mortgage Bailout (10/23/2008 7:18:51 AM)
I'm not sure I understand the word "dangerous" in the context of Obama vs. McCain. Right now, the greatest threat our country faces is a meltdown of the economy. The terrorist/criminals are a nuisance compared to the damage that a prolonged depression would do- since a depression has to include lives lost from starvation, inadequate medical care, substandard housing etc. In this world- money translates to life. It is also impossible to have a strong national defense without a strong economy. I will not argue that in the past, McCain has had many admirable and honorable accomplishments and I think he would have been a vast improvement over our moron in chief of the past 8 years. Unfortunately, we got Bush. But we are facing an economic crisis and it calls for a radically different direction. We no longer have the safety net of a functioning economy to fall back on for presidential mistakes. If we examine McCain's recent record, it's not so pretty. In a fit of pique, he nominated Sarah Palin as his Veep. She makes Dan Quayle look qualified to be Prez- and McCain's medical history means that it's a role of the dice (according to actuarial tables) that the guy comes up dead in his first term. Rather than taking responsibility for the economic debacle which was caused by following the oracle Greenspan blindly and deregulating the financial markets, McCain's economic proposals have been band aids which show that he doesn't understand that deregulation is the core problem here. (Some of us are furious that politicians always assume they're smarter than their predecessors. Its clearly not true- the senators and congressman that passed those regulations back in the 1912-1939 era had wonderful examples of the damage that had been done without them- and we're so intellectually lazy that we failed to understand the rationale behind the regulations and the circumstances that brought them on. As the truism goes- those who do not learn the lessons of history will be given another chance- as we see now. Greenspan's comments about today's bankers long term self interest preventing the speculative bubble of shuffling risk around was so much hot air.) McCain's economic fixes harken back to Herbert Hoover's prescription for solving the Depression- tighten the belt, don't raise taxes, and cut spending. It didn't work then and it won't work now. This is what I find most worrisome about McCain- he's got a temper and he's at an age where flexibility of thinking often begins to fail. We don't need a dead hand on the tiller of the economy- we need to navigate the rapids. Obama's prescription of reregulation, raising taxes, and increasing spending is the correct choice for increasing our odds of getting out of the current economic debacle. It's no guarantee- but it's a bet that has a lot more reasoning behind it and shows an understanding of how we got to this point, and what's worked before. The problem is that we're now saddled with a large deficit- courtesy of the Republican presidents since (and including) Reagan. This deficit is going to grow further..... So I really don't understand how someone can characterize Obama as "dangerous" when I think the "dangerous" choice is McCain. Note- I also put my money where my mouth is- I've actually been throwing money into the market in the past few weeks. Hopefully the mantra of "high risk- high reward" holds. We need more investors who are less risk averse holding money- large chunks of capital in short term retirement accounts is a disaster. Sam

UncleNasty -> RE: The idiocy of McCain's Mortgage Bailout (10/23/2008 9:05:04 AM)
I disagree with bailouts overall but forced to choose I would rather people be bailed out than corps and banks. None of the decision makers seemed to care about my views or preferences Has anyone else noticed the vast difference between the estimates of how many mortgages are in default or foreclosure (I've seen numbers in the $150,000,000,000 range) and the continuously increasing amounts being thrown at "wall street?" If this debacle has been caused by mortgages, and sub-prime mortgages, going bust wouldn't throwing $150,000,000,000 in that direction be a much less costly solution? I mean really, $700,000,000,000 to start, another $250,000,000,000 here, another $100,000,000,000 there, and still no end in sight. Good fiat currency after bad if you ask me. I think a "trickle up" approach could have served us all much better. People and families would stay in their homes avoiding mass social upheaval and loss of stability and wealth, banks and alleged lenders would still recieve payments and remain solvent, your house wouldn't lose value because of 4 empty foreclosed properties on your block, home values overall would remain higher maintaining the property tax base municipalites use to fund all sorts of necessary programs, pension funds would maintain their value.... The list of benefits goes on and on. To my knowledge there have been no changes in the record numbers of defaults and foreclosures as a result of the current and ever expanding bailout. I don't expect to see a decrease anytime soon, and don't anticipate any decreases being as a result of the bailout. What it seems we have is the Fed Gov taking money away from the people, distributing it to a select few so they don't lose their cookies, while those select few continue to take wealth and property away from others. It is note worthy that many foreclosures are unlawful and illegal. Also very note worthy is that many of the loans involve fraud in the original contract on the part of the alleged lender. Uncle Nasty

NuminousLeader -> RE: The idiocy of McCain's Mortgage Bailout (10/23/2008 9:41:57 AM)
Well, I think the markets should have been left alone and settle the issue and bring "value" back to the market place. I think the bailout was a HUGE waste of money, even now they are talking about 20 billion of the taxpayer funds to be used for corp pay. As to rewarding those who are in foreclosure with paying off the mortage and then re-mortaging with a lower principle, then every person who is paying on time is getting screwed. Hell, I'll stop paying my mortage to lose 20% of the prin. and keep my house. The whole mark to market crap they used was nothing but a scare tactic, if a holding company intends to keep the bundle for it's lifetime, there are not enough trades of them in the marlet place to access a value, hell if two bundles get traded in 14 days that's alot. They really only care about the end value and there is so much money in them over time they can asbord all the bad mortages. The US taxpayer just got screwed out of 700 billion big ones, and nice parting gift from Bush to all his loyal supporters

samboct -> RE: The idiocy of McCain's Mortgage Bailout (10/23/2008 9:43:00 AM)
UN I think there's been a lot of conflation of two separate problems- 1) Sub prime mortgages were extended to people in a free wheeling fashion. As long as prices increased- no problem. Currently the prices are decreasing. How many mortgages are in trouble? Probably about 15 million from the numbers I've seen. Can the system handle this alone? Yes- prices will fall, some people will lose equity, there will be lawsuits alleging fraud- lawyers will of course benefit- business as usual. What good does a government bailout do? Probably not much. What could gov't do? Get into the mortgage business to provide a floor for housing prices- allow people with decent jobs to buy houses at 2x their income, assuming that their credit card and other debt is low. (This is a problem- credit companies like to see people with credit cards- gov't mortgages should downgrade borrowers with credit cards. If this strangles credit card companies- its long overdue.) Don't worry about the value of the house- the market will take care of that. 2) Second problem- really tangential to the first. The big money in this country is in private equity- and it made bets on the direction that mortgages would go. It bet wrong. The fact that sub-prime mortgages were bet on is irrelevant- it could have been oil speculation or anything else. Simply put, people were collecting bets that they didn't have sufficient money to pay off on if the system collapsed. Any bookie will understand what happened. I have no problem in seeing wealthy individuals lose their shirts. However, we can't throw the baby out with the bath water and we have to be selective about which businesses fail. Banks need to be able to loan each other money, and I suspect we need some new federal money along with guarantees to make sure that happens. Sam

JohnnyCanuck -> RE: The idiocy of McCain's Mortgage Bailout (10/23/2008 9:52:18 AM)
quote: ORIGINAL: samboct The problem is that we're now saddled with a large deficit- courtesy of the Republican presidents since (and including) Reagan. This deficit is going to grow further..... Sam, I am curious. As I understand the Chinese hold a lot of T-Bills. If true, what happens if they decided to cash those in? And how much of a hold do they have over American foreign policy if cashing those in is used as a threat? There is one other thing. I've heard it said McCain has accused Obama of being socialist and wanting to re-distribute the wealth. Just how does McCain avoid that accusation when he is talking about taking tax-payer money and re-distributing it so as to prop up banks (which, according to the rules of capitalism, are failures and should not be supported) and those with bad debt (which, according to etc ...)? How does this bail out encourage people to be more responsible, when those who are more responsible will be the ones paying the taxes that go to those who were irresponsible? Punish the responsible ones and reward the irresponsible ones? Thanks for your previous entries, most interesting.

samboct -> RE: The idiocy of McCain's Mortgage Bailout (10/23/2008 12:18:03 PM)
Hi JC The Chinese holding a lot of T-bills have certainly been a problem in terms of enforcing IP, trade agreements, human rights violations etc. I still don't get the idea of how a company can be liable for a fine in the US for environmental releases to the atmosphere- move to China with its much laxer pollution controls- and then sell the product back in this country without paying a tariff. It's the same atmosphere on the planet- pollution does not respect state borders. McCain calling Obama a socialist is merely following a well established Republican tradition of branding your opponents something unsavory. In the '48 election- the response was you can either vote Republican or Communist. This is nothing new- it's hyperbole, jingoistic appeals to patriotism (as if Sarah Palin represents mainstream America- the strength of this country is that it's a rainbow-not a single demographic.) that have served the party for years. Redistributing the wealth? That's an interesting charge. The biggest redistribution of wealth is social security where people who neither earned the money nor invested it have received retirement windfalls-to avoid the stigma of calling social security welfare by needs testing. Taxes redistributing the wealth? How? Taxes are to pay for the government that we receive (and as Oliver Wendell Holmes pointed out- "I like paying taxes. It keeps society from turning to anarchy.") A more equitable tax system is not a scheme for redistributing the wealth- it's simple fairness, recognizing that the wealthiest Americans have disproportionate capital relative to their accomplishments. Percentage wise they pay less in terms of taxes than the middle class when all taxes are included- not just income tax. Like the claim of Obama being a socialist- this is another campaign claim that has feet of clay. In terms of taking responsibility for this fiscal mess- well, these were our duly elected leaders and we're responsible for electing them- therefore the responsibility of deregulation does fall on all of us. While the instinct of revenge runs deep, we have to be careful that we do not cut off our nose to spite our face. We're not going to be able to punish all those responsible for the financial mess we're in- I doubt we'll get a significant fraction. But we're in a lifeboat with these guys, and if we capsize the boat trying to toss them out, we all drown. So yeah- we're going to wind up rewarding at least some of the irresponsible folks who got us in this mess, because they will keep some of their gains. For those folks who were "responsible" hell- Bush got elected. Nobody's hands are lily white. Glad you find my ramblings interesting- it's something of an outlet. Sam

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