Obama and McCain have announced their plans for the mortgage crisis. Both are quite vague, especially Obama’s. This is par for the course from mainstream politicians a couple months before a close election. As far as I can tell, Obama’s plan is to bail out borrowers and impose unspecified new regulations on the financial sector, and McCain’s plan is to formalize the principles behind the earlier ad hoc Fed/Treasury bailouts (liquidity loans to prevent counterparty cascades and avoid panic sales, coupled with equity warrants (stock options, as with the AIG bailout) to ensure shareholders take their losses despite the bailout), plus a much lighter version of the Bush/Paulson plan (much closer to the S&L resolution trust, in that it only applies to insolvent institutions) to purchase illiquid assets for resale when the market has left panic mode.
I need more information before passing judgement on either plan, and sadly I don’t think we’re likely to get that in an election year.
From Obama, I’d like to know:
- What is your plan to help home “owners” (*)Â stay in their homes, and to what extent will it tax people who made responsible financial decisions in order to subsidize people who made bad decisions?
- What sorts of regulations would you impose on the financial sector?
- How would they have prevented the current crisis?
- How likely are they to prevent a future finacial crisis that takes a new and exciting form?
- How much will the regulations cost in enforcement and compliance costs?
- What desirable economic activity would be blocked as collateral damage of these new regulations?
(*) I prefer Arnold Kling’s term “homeborrowers” for people with little or no equity in their homes, to distinguish them from people who sunk large amounts of their own money into their homes.
For McCain:
- Your plan states that the MFI would buy assets at “market rates” and sell them later at a profit. How will the MFI identify market prices of assets for which there is no market, and how will it ensure that taxpayers make a profit though speculating in illiquid assets?
- If, as seems likely, the MFI does not turn a profit, how much will it cost taxpayers, and who will receive the benefit of the taxpayers’ loss?
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There also is a Dodd plan. See:
http://www.politico.com/blogs/thecrypt/0908/Dodd_bill_much_more_aggressive_than_Treasury_plan.html
The actual text of the draft bill is here:
http://www.politico.com/static/PPM41_ayo08b28.html
This stuff is really confusing. Can’t we just line the CEOs and their immediate underlings up against a wall somewhere?
My take, partisan tho’ it be:
As our children play with lead-tainted toys; as bank after bank fails; as economists warn that the trajectory of home depreciation is set to exceed Depression Era lows; as the Stock Market plummets, we witness the endgame of eight years of Republican executive misrule.
John McCain’s campaign, in an effort to distance their candidate from the current President, repackage the Arizona septuagenarian almost daily. His latest incarnation, economic populist, is a poor facsimile of his Democratic rival – the speeches a patchwork of vague platitudes, the outrage contrived, the body-language desperate.
The manner in which Senator McCain has run his campaign is indicative of how he will govern — cynically. He has shown that he will do anything to win the Presidency, and in so doing, he has debased the office before ever taking possession of it. Let us pray that he never does.
Can’t we just line the CEOs and their immediate underlings up against a wall somewhere?
Nope. They have to be proven guilty of a capital crime first, and we can’t make up crimes after the fact. The Constitution’s not just there to look pretty.
As our children play with lead-tainted toys
I don’t have any children, but do you really buy lead-tainted toys for yours?
as bank after bank fails
How many actual banks have failed? Several have merged, and some financial sector companies have gone under, but very few if any of the insolvent companies are actual depositary banks.
as economists warn that the trajectory of home depreciation is set to exceed Depression Era lows
Homes were very overpriced. When prices fall to more reasonable levels, that’s the market sorting itself out.
as the Stock Market plummets
It does that from time to time. In between, it goes back up.
we witness the endgame of eight years of Republican executive misrule.
Real GDP has gone up every year of the Bush administration, for a total growth of 20%. Eight million new jobs (net) have been created. Yeah, those Republicans really fucked up the economy.
the speeches a patchwork of vague platitudes, the outrage contrived, the body-language desperate.
Wait, are we talking about McCain or Obama?
The manner in which Senator McCain has run his campaign is indicative of how he will govern — cynically. He has shown that he will do anything to win the Presidency, and in so doing, he has debased the office before ever taking possession of it. Let us pray that he never does.
I think you just described 90% of politicians seeking office, regardless of party.
Maniakes,
90% is a lowball estimate.
Who actually decided that people who could not afford mortagages should be allowed to buy homes?
That would seem to be the root cause of the current crises; what followed was various financial institutions doing what Congress wanted in a postive feedback loop until the system went unstable.
Who actually decided that people who could not afford mortagages should be allowed to buy homes?
The government provided that push with the Community Reinvestment Act in 1977. Basically, in the name of diversity and equality in mortgage lending, banks were "encouraged" to loan money to under-qualified and unqualified borrowers.
From Wikipedia:
Original Act The CRA was passed into law by the U.S. Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act. [1]
The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution’s application for deposit facilities, including mergers and acquisitions. The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB).
Clinton Administration Changes of 1995 In 1995, as a result of interest from President Bill Clinton’s administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators’ attention on institutions’ performance in helping to meet community credit needs. These revisions[1] with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision.[citation needed]
Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997 by Bear Stearns. [2] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent. [3] [4]
P Mike,
I think the problem is more along the lines of those mortgages being packaged and sold as investment vehicles, not the mortgages themselves.
"I don’t have any children, but do you really buy lead-tainted toys for yours?"
In fact, yes. Owing to the evisceration of any oversight, my daughter did have a Dora the Explorer doll that tested positive for lead. Would you like me to buy you one? I’ll ship it overnight. Maybe one of those dandy eight million jobs Bush, et al, have created can hasten it to your doorstep.
Bank failures: see Silver State, which counted McCain’s son among it board; I lost interest after that (11th).
20% growth? Still?
Gone in the twinkling of a bubble economy’s eye.Maybe you’d like the Dora doll, after all. Might give you consolation on those lonely evenings as the market ’sorts itself out.’
Funniest thing I’ve heard on this so far:
http://www.theseminal.com/2008/09/23/awaiting-your-correspondance-important-business-matter/
Dear American:
I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude. I am Ministry of the Treasury of the Republic of America.
My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.
I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s.
This transaction is 100% safe. This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance.
My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred. Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction.
After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.
Yours Faithfully Minister of Treasury Paulson
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