Buying Bad Mortgage Policy from McCain

I know what a lot of you think you heard from John McCain last night about the government buying bad mortgages and all that. And in a way, it kinda sorta sounded like an idea Barack Obama had earlier, and that Congress included in its final bailout package last week.

But I listened to it again, and it sounded different. So, I looked at the transcript, and what I figured out is that John McCain really doesn’t know what the hell he’s talking about, and cannot be trusted with the economy.

See, the idea that I thought McCain was discussing, and claiming as his own, was this idea that many have recommended (including me), in which people who are upside down on their mortgages can negotiate a new mortgage, reflecting the current, lower value of their home. The banks could be partially subsidized for any losses, and in almost no time, we’d all be back on our feet. People who were previously screwed would be made whole, and it would then be largely unnecessary to bail out the gamblers who pissed their money away by creating a phony market based on no actual value. In other words, he may be trying to paraphrase the plan Obama and the Democrats have been pushing all along.

But read carefully, because McCain actually stands this idea on its head.

You know that home values of retirees continues to
decline and people are no longer able to afford their mortgage
payments. 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.   

it expensive? Yes. But we all know, my friends, until we stabilize home
values in America, we’re never going to start turning around and
creating jobs and fixing our economy. And we’ve got to give some trust
and confidence back to America.

I know how the do that, my
friends. And it’s my proposal, it’s not Sen. Obama’s proposal, it’s not
President Bush’s proposal. But I know how to get America working again,
restore our economy and take care of working Americans. Thank you.

was wrong. When I first heard this last night, I commented that he was
essentially parroting Obama’s stump speech and trying to make Obama’s
program his very own.

He is not, however. What he’s proposing has to be the flat stupidest thing I have ever heard in my life.

He wants to “buy up the bad home mortgages in America."

Think about that a minute.


let me get this straight. For weeks, he and his right wing brothers and
sisters have been railing about all of those families who were given
mortgages, even though they didn’t actually qualify, and shouldn’t have
gotten them. Now, he wants to spend billions of dollars to buy their
mortgages and let them renegotiate? He wants to buy up the mortgages of
those people who can’t afford to stay in their homes, and let them
renegotiate a smaller mortgage, while others, who apparently have
“good” mortgages and are paying on them faithfully every month, just
get to keep their upside-down mortgage? What about the people who took
out home equity loans on equity that no longer exists, because the
crooks drove the prices up so high before they crashed?

there are lots of people who have subprime mortgages, and need some
relief; no doubt about that. And they should be given an opportunity to
keep their home, as long as that’s possible. But is that a “bad
mortgage”? I know a few retirees are suddenly finding themselves upside
down on their mortgages, or paying on home equity loans on equity that
no longer exists, and they should be allowed to renegotiate,but the very concept of just "buying bad mortgages" is nothing short of absurd. Talk about government pissing its money down a rathole.

And it wouldn’t solve the problem, in any case. The current crisis is a credit crisis, not a mortgage crisis. The problem isn’t the mortgages themselves, but these stupid financial instruments called "mortgage-backed securities," that have no actual value, because the shares purchased are not attached to a specific mortgage, but to a piece of a huge mortgage pool. As a result, these securities don’t have an actual value, and it is not possible to determine an actual value to them, since they don’t represent anything specific.

Yeah, those "free markets" work

Since banks don’t have a way of knowing how much of this essentially worthless paper other banks have invested in, they have been reticent to lend to other banks, which is causing those banks to be short of money to be used for credit. The credit crunch is the problem; the government’s job in the bailout is to set values for the mortgage-backed securities.

The mortgage problem is something else,and McCain demonstrates absolutely no understanding of it. It’s the direct result of the government, run by John McCain’s heroes, from Ronald Reagan to George W. Bush, and Newt Gingrich to Phil Gramm (McCain’s economic adviser, no less), ignoring its constitutional mandate to regulate markets, and thus allowing fraud and abuse. Buying up "bad mortgages" would seem to depend on what McCain considered to be "bad mortgages." Does McCain really think an old retired couple who’ve lost $50,000 in equity somehow constitutes a "bad mortgage"? Most would consider a "bad mortgage" to be one in which the homeowner is incapable of paying.

Now, note the asinine statement by McCain, in which he suggested that, somehow, buying up "bad mortgages" will " stabilize home
values in America."

That has to be the most economically ignorant statement made by a major party candidate in many years. Home prices are unstable because of a little capitalistic notion called "supply and demand." See, the reason home prices became over-inflated was because there was suddenly a huge number of buyers who weren’t in the market before. Because of fraud and deceit, prices rose far higher than they should have. The reason prices are dropping to their natural level is because there are now far fewer buyers and, because of the spike in foreclosures, there is suddenly a glut of available homes. Builders overbuilt, thinking the supply of buyers would never end.

Therefore, "buying up bad mortgages" will do nothing to "stabilize home
values in America," and for McCain to even begin to think they would is ludicrous.

It’s absolutely clear that John McCain is not someone who "know(s) how to get America working again,
restore our economy and take care of working Americans." He doesn’t even understand the basics of how our economy works. Even the right wing will have a difficult time defending this level of ignorance.

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  1. Here’s the problem…
    The time to fix the mortgage crisis was a year or so ago. Yes, foreclosures are still happening, but that is not what we’re bailing out with this $700 billion. Should we help people stay in their homes? Yes, of course. But that is not the problem right now.
    I actually presented a plan on here a while ago, which would help shore up the housing market, fix the credit problem, and bring the economy back, with a lot less than $700 billion.
    Check it out right here;
    And pass it on…

  2. The credit crisis is related to the “bad mortgages”. Mortgages were bundled up and sold. Some were sold as prime but had subprime hidden in the bundle.
    One bank does not know by how much another bank has been defrauded. Indeed there are probably quite a few banks who don’t know by how much they have been defrauded. It would be helpful if the prosecutions could occur sooner.
    On the other hand it is tragic if someone (or family) is thrown out on the street. I don’t own as many houses as McCain and have no interest in stabilising house prices. Indeed, perhaps if they fell in price a lot (I live in California) then I could afford to buy one!
    I would propose that a homeowner threatened with foreclosure could elect to sell 20% of their home to the state. The state could pay off the lender at todays property value and when the home is sold in 5, 10 or 20, years the homeowner would get their 80% and 20% could go to the state – even to fund social security.
    But for me, a renter to simply shore up home prices using tax dollars is utterly unacceptable.

  3. I agree with what you say mostly, regarding the mortgage mess. But in saying that this is a “credit crisis,” and not a “mortgage crisis,” you ignore the millions of Americans for whom inability to pay their notes threatens to dislocate families to the street. Although the markets are responding with brisk selloffs to the credit crunch, no solution will be complete without some relief for mortgagees about to lose their homes. There is simply no time for judging just whom does and whom does not deserve rescue. This is a national emergency and needs swift and assured handling.

  4. I agree. McCain has no understanding of the economy at all. He just thinks what he’s told to think, by whomever pays him the most money to buy him lunch. These days nobody is paying him money to buy him lunch, so he doesn’t know what he thinks. That’s why he looks so underfed and sounds so confused these days.
    This is a clear, elementary two-part review of our Economic disaster, aired on NPR maybe two weeks ago. You might have already heard the shows, but here are the links anyway:
    milt brewster

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