Follow up Tom Brokaw wouldn't allow
Did McCain suggest he was going to reduce Social Security benefits?
If McCain thinks Treasury should buy all bad mortgages, then why didn't he say so last week? What is a bad mortgage? If that refers to homes whose value is less than the mortgage debt, then that may amount to as many as 10 to 20 million homes before prices hit bottom. So does McCain imagine that Treasury will spend another two to four trillion dollars -- perhaps what it would take to fulfill his commitment? And would Treasury then be the creditor of millions of Americans, forcing foreclosures and auctioning houses? Does Paulson support this plan? Does anyone? Will McCain support or explain it tomorrow?
Does McCain really not have any prioritization of his goals?
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I like to think McCain suggested buying up the mortgages because he read the discussion Ellen and I had about it a few threads back.
I am concerned that McCain got to this idea first (because I happen to think it's a great idea and one of the few ways a candidate can say something that people relate to at a grassroots level) but apparently it was already in the bill anyway.
October 7, 2008 11:35 PM | Reply | Permalink
Yeah; what's Reed complaining about?
McCain's sounding more like FDR every day -- although unlike Roosevelt he isn't promising a balanced budget and if elected, probably won't purge veterans and widows from the pension rolls.*
* Nothing like fulfilling one's campaign promises on the backs of widows and orphans.
October 8, 2008 12:39 AM | Reply | Permalink
Ellen,
I KNEW Roosevelt, Roosevelt was my Commander in Chief. McCain, ma'am, is no Franklin Roosevelt!
October 8, 2008 11:22 AM | Reply | Permalink
Or McCain's been talking to Martin Feldstein. Here's a snip from a recent WSJ article:
from:
http://online.wsj.com/article/SB122307486906203821.html
(I hope I got the blockquote tag right, kinda new to html)
October 8, 2008 12:28 AM | Reply | Permalink
The way to solve the housing crisis is to let the prices adjust to its historical ratio of income to price levels. That's painful to hear but true. The way out of the economic mess we are in is to tax the bejesus out of the wealthiest among us and use that money to fund infrastructure projects and energy initiatives. World economy is too top heavy. Until balance is back in the system, it will fail.
October 8, 2008 12:58 AM | Reply | Permalink
Andrew Mellon is IN THE HOUSE.
October 8, 2008 1:21 AM | Reply | Permalink
get snarky if you want..... I stand by my solution. I don't expect the self anointed masters of the universe to be happy, I personally don't care how they feel. They enjoyed the profits of their past behavior. Now they or should I say we can reap the fruits of their superior status. Ayn Rand would see me damned, but to hell with her.
October 8, 2008 1:56 AM | Reply | Permalink
"snarky" -- Irritable or short-tempered; irascible. Also, sarcastically critical or mocking and malicious.
Nothing snarky about my comment! FYI I'm a "liquidationist."
But on this board you've got to defend that apostate view -- and sticking up for Andrew Mellon would be a good place to start.
New Dealers: "Turning Recessions into Depressions one step at a time."
October 8, 2008 2:09 AM | Reply | Permalink
Would you elaborate? "New Dealers: "Turning Recessions into Depressions one step at a time."" Please.
October 8, 2008 2:20 AM | Reply | Permalink
Nope.
October 8, 2008 2:24 AM | Reply | Permalink
I will say one thing, though.
I consider Hoover to be a New Dealer in all but name.
While not all of Hoover's policies were adopted by the Roosevelt Administration, most were. And too, facts on the ground having changed post-1932, Hoover himself would likely have abandoned those of his policies that Roosevelt later abandoned had he been reelected.
October 8, 2008 2:32 AM | Reply | Permalink
Also, Andrew Mellon did not advocate spending on projects for the public good. I'm not against the government helping people in need.
October 8, 2008 2:04 AM | Reply | Permalink
OK so we'll just run this economy until the doors fall off and then we'll buy a new one.
From China.
Sorry for the snark, but wouldn't it make sense to fix the housing market a bit, so maybe somebody who needs to move can sell their house, so people can stop panicking about their housing values, so renters can stop getting kicked out of foreclosed investment properties and hitting the homeless shelters? I'm not talking about fancy detailing here, just a tank of gas and a little lube to give individuals caught in the housing crisis moving again.
It's all well and good to talk about restoring the theoretical balance and everything, but I bet if you were writing from a library computer while your 4 kids scan the newspaper for ads for nearby affordable housing because the sheriff is closing down your triplex next month, you might see things differently.
A massive loan workout package would do more to stabilize the economy than just about anything else. And, especially if the money were carefully used, it could provide help for at least some of the people who need it the most. Ok, so the single mother of 3 couldn't afford a $200,000 house. Her bad, or maybe the bad of the broker who said she could. Whatever, but she can afford a $65,000 house, and guess what--that's what hers is worth now. Why not "short sell" it to her--rather than hand $200k of taxpayer money to the loan servicing company, dump her out on the street and have that house sit empty until somebody comes along and buys it?
Sorry to go on and on, but it just baffles me that folks are either so mean-spirited or eggheaded that they can't see this makes practical sense.
October 8, 2008 2:04 AM | Reply | Permalink
But erica, you don't have a subject named in the next to last paragraph.
In your example who is going be dumping Ms. No-Got-Rocks "out on the street"? Who is going to "short-sell" the home she's currently residing in to her?
If you say the taxpayers, how did the taxpayers acquire the mortgage which is going to be crammed-down from its current outstanding balance to the current value of the home? How much did the taxpayers pay for that mortgage? In other words how much are the taxpayers going to lose in the transaction?
Note. The house won't necessarily "sit empty"; it can be rented out by the purchaser who acquired it at the sheriff's sale .
October 8, 2008 5:13 AM | Reply | Permalink
"The house won't necessarily "sit empty"; it can be rented out by the purchaser who acquired it at the sheriff's sale ."
Part of the decrease in home prices is no one can get a mortgage to buy. So who will buy the foreclosed property from the sheriff? For the economy as a whole and for moral reasons it is better for the lender to take this loss than the individuals or society.
October 8, 2008 12:07 PM | Reply | Permalink
Reasonable questions.
Taxpayers essentially own the house if the loan was made or guaranteed by Fannie or Fred. (Although Fannie insists that they don't have the power to tell the banks to write down the mortgage principal, which seems crazy to me and I think we should all be instructing Fannie/Fred to get the best deal for taxpayers that we can.)
It's the banks forcing the sherrif to dump out Mrs. Got no Rocks and refusing to make a deal with her to the benefit of both her and ultimately the taxpayers.
Taxpayers are going to lose the full retail value of the mortgage, although they may get some back when the house sells. This is a bad deal because the house will likely sit empty (except for the copper thieves and drug addicted prostitutes who will try to get in) during much of the redemption period until it sells. By that time, the value will have dropped even more.
The bank has no incentive to rent the property out, and renters have no incentive to rent it because if it sells, they have to be out by the end of the month, which doesn't work for most people.
I could go on and on about the practical everyday realities here but the short story is that short selling to the current owner is a lot better deal for everybody except the banks who are currently servicing those mortgages and holding out for full retail reimbursement.
October 8, 2008 12:54 PM | Reply | Permalink
For a bit of perspective erica's suggesting bailing out the lenders on as many as 20 million mortgages.
October 8, 2008 3:10 PM | Reply | Permalink
According to CBSMarketwatch
It's the Paulson Plan
McCain's bold new mortgage plan isn't new
The problem, of course, is that it is President Bush's proposal. At least, it's Treasury Secretary Henry Paulson's proposal. It's the heart of the $700 billion plan.
According to Section 110 of the law, the government is going to buy up "troubled assets," including residential mortgages, and then do everything it can to "minimize foreclosures" by modifying the terms of the loans by reducing interest rates, reducing the principal or "other similar modifications."
http://www.marketwatch.com/news/story/marketwatch-first-take-mccains-bold/story.aspx?guid=%7B6233F720%2DADBD%2D49CC%2DAFD0%2D52407D80822D%7D&dist=hplatest
October 8, 2008 1:33 AM | Reply | Permalink
I think we should pour taxpayer money into banks, into infrastructure projects, and into buying out mortgages, the latter in order to prop up home prices -- sort of follow the Japanese model.
The Nikkei* closed today at 9203.32 or 7% below where it stood at the beginning of 1984 -- over 24 years ago.
* An index of 225 stocks trading on the Tokyo Exchange and a pretty good representation of the health of the second largest economy in the world.
October 8, 2008 4:29 AM | Reply | Permalink
??????
October 8, 2008 4:32 AM | Reply | Permalink
"I think we should pour taxpayer money into banks, into infrastructure projects, and into buying out mortgages, the latter in order to prop up home prices -- sort of follow the Japanese model."
Your mix matching banter conflates paper value and tangible material, as the same thing. In the real world they are not the same. The value of something does not negate its existence. The difference is, throwing money into public works benefits the system, throwing money into mortgages to keep home values up, only benefits individuals at the expense of others. Everyone, can't live in the same house, but everyone can benefit from clean water and power. Money is merely an arbiter of status.
October 8, 2008 4:46 AM | Reply | Permalink
Also, markets have never ever been perfect measures of the health of an society. Do you seriously believe that the markets we've had over the last 18 years have been indicative of the health of our society? How do you account for Enron or so called "Service Economy"? I think the results are clear, markets are divorced from reality and prone to manipulation. Thus the need for rules and regulations.
October 8, 2008 4:56 AM | Reply | Permalink
You did mean "health of an [economy]" rather than "society," yes?
And yes, I did mean to imply that no increase in the nominal price of an economy's stock market in 24 years is pretty good proof that the economy is not doing well.
Why it is not doing well -- following Bernanke's prescriptions, perhaps? -- is another question.
October 8, 2008 5:26 AM | Reply | Permalink
I was hoping you saw that. I wrote it that way on purpose because I don't think the language of economics is the best way to model the world. Placing markets ahead of people is like "placing the cart in front of the horse". Market action isn't proof of anything in my opinion.
October 8, 2008 5:41 AM | Reply | Permalink
GDP (GNP in them olden days) has never been an adequate marker of social health and/or wellbeing, and very few people would argue it is, and yet --
Almost all of our elite economists and politicians accept it as a measure of policy success and plan those policies in consideration of their effect on GDP.
Without it, what do have to talk about?
October 8, 2008 6:51 AM | Reply | Permalink
There's also no incentive for the private sector to deal with infrastructure problems like maintaining bridges. One only has to look at what's happening in the telecom industry to see that is the case. The airline industry is another. The airline industry simply could not exist without government subsidy. Local governments build airports, the federal government provides security and oversight. Turning those things over to the private sector puts peoples lives needlessly at risk. In fact, you and I wouldn't be discussing this if it weren't for DARPA creating the components for the internet with government funding. Many of the health care advances we enjoy, stem from government subsidized university projects which private companies are allowed to profit from.
October 8, 2008 5:09 AM | Reply | Permalink
The airline industry simply could not exist without government subsidy.
Why not?
Note: The governmental costs you list need not constitute subsidies.
October 8, 2008 5:31 AM | Reply | Permalink
For that matter, our military sitting in Iraq securing oil constitutes a government subsidy also.
As to the airline industry, if the airlines had to buy the land, build the airports, and maintain their own security, the price of a ticket would be so high that no one would fly. Air travel would be unusable as a mode of transport. Because taxes pay for those things, airline tickets are low enough for air travel to be cost effective for a majority of the people. That's subsidizing the cost of air travel. Same holds true for automobiles. Like it or not there is some utility to collective action.
October 8, 2008 5:52 AM | Reply | Permalink
Ellen,
I have yet to find one who can tell me why comparing anything to the GDP has relevance
to everyday life.
If something is X % of GDP what does that mean to
a family of four with a gross income of say, $60,000?
How does that part of the GDP that reflects proceeds of selling life insurance affect "joe six pack"?
October 8, 2008 2:16 PM | Reply | Permalink
Brokaw asked a question about Social Security, Obama was first and skirted around the question.
McCain got up, approached Brokaw and said: (paraphrase)
'I'll tell you what I'm going to do, I'm going to answer the question (smile).
I know what to do my friends and so do you. We know what to do. We'll bring in the right people and we'll solve the problem.....'
That was McCains way of 'answering the question'.
October 8, 2008 9:38 AM | Reply | Permalink
Let's not forget his spending freeze..
This is twice in two debates we've now heard McCain advocate a freeze on everything but military and entitlement spending. I don't get how that squares with the ideas of buying up mortgages, building new nuclear reactors and spending more on energy research. It doesn't sound like much of a freeze to me.
October 8, 2008 10:04 AM | Reply | Permalink
It's a freeze on any programs the Democrats want, and it's pork to Republican friends.
October 9, 2008 12:44 AM | Reply | Permalink
"Des McCain really not have any prioritization of his goals?"
You left the "O" out in your last sentence and how appropriate. Because what is missing from McCain's prioritization of his goals, is careful consideration and thoughtfulness that only a missing "O" can apparently provide. OBAMA!
October 8, 2008 10:05 AM | Reply | Permalink
When I heard McCain say he wanted to buy up "all" those bad mortgages and then refinance them at the appropriate lower home price, it did not make sense to me. He has been talking about strict budget cuts and sacrifices to reduce government without any new spending. He has suggested putting ALL government spending on hold with the exception of military spending. Buying those homes and paying down the mortgage would cost billions and billions of dollars. We can not print enough money to bail everyone out. I do not believe we can spend our way out of this mess.
McCain talks tough on government spending, but he can't back up what he says with plans that make sense. I would like to see him stick to his main message - No taxes - No government spending - and tell me how he plans to make it work.
October 8, 2008 12:20 PM | Reply | Permalink
Billions and billions in today's dollars may not end up being all that much in the grand scheme of things. I can't get my head around billions and billions either, but I really can't get my head around more than a trillion just to shore up the banks and not even touch the housing crisis which is the root of the problem.
October 8, 2008 12:36 PM | Reply | Permalink
Yeah Erica, if McCain or the guy from WSJ want to buy all the Mortgage backed funds at imaginary prices, and then somehow buy the individual mortgages themselves from the citizens at ‘the bottom’ who are supposed to pay back the Mortgages that prop up the investment funds, they need to explain it to everyone a little better. Sure sounds like ‘Back in the USSR’ to me. And since no one has pointed out McCain’s gaffe last night of “…when we defeated the Soviets in Afghanistan, well, uh when we defeated them with the help of the Afghani freedom fighters, we pulled out too quickly and let the Taliban emerge...” it becomes a more timely problem. Last time I checked the Taliban started off as part of the Pakistan Intelligence (ISI) agencies we have supported all the way until Musharraff went away and they started shooting at us last month. Anyway, we spent most of the last century fighting Communism and now the people we armed to help us have turned against us and we have become a Military State with a Socialist economy.
October 8, 2008 12:58 PM | Reply | Permalink
Taxpayers are going to lose the full retail value of the mortgage . . . .
And that's where we part ways.
I'm simply not prepared to bail out all those foolish and profligate lenders.
October 8, 2008 2:23 PM | Reply | Permalink
Oops!
Meant as a reply to erica.
October 8, 2008 2:25 PM | Reply | Permalink
I wrote that post in a hurry so it may not have been clear.
Taxpayers are currently going to lose the full retail value of the mortgage, because it's guaranteed by FNMA. This guarantee means that we are all going to have to wait until our next lifetime to see those bad lenders get what they deserve!
Status quo is that as soon as the lender forecloses on the property, they can go to FNMA for the full amount of principal plus interest. That's a bailout for the lender right there. And FNMA is stuck with a house that has probably sat empty and boarded up for the full redemption period, which has further reduced its value and really makes it tough for Fannie to resell.
At least if the govt buys all the mortgages before foreclosure, they have a shot at getting a better chunk of the upside.
Ellen, you are correct that the numbers are a shock. If it's 20 million mortgages at $200,000 apiece that's 4 trillion dollars, with a potential return of about 2 trillion if you figure that the "new value" would be about half the old value. Ouch.
That's why the "erica plan" leaves the mortgages in place (and unfortunately, the snidely whiplash types relatively unscathed--ugh.) In my plan, Uncle Sam would make a direct payment to the bank (on behalf of the homeowner) of a portion of the principal and a chunk of interest each month. This payment could be taxable to the homeowner (and maybe the banks would have to do certain things in order to qualify). The faster the govt pays down the mortgage, the less the program costs in the long run. The program would end when what the homeowner owes on the house meets up with the market value of the house. Way less initial outlay and really a better way to do it IMHO.
People have criticized this idea as artificially inflating the housing market, but I think it would more just allow the market to settle rather than crash.
I am hoping that some people with a better handle on economics than I have (Ellen? Dean Baker?) will consider the potential of my proposal and move it forward.
And if some nice TPM reader wants to send me a little cash, I'd be willing to set up a pilot program in my neighborhood.....:^)
October 8, 2008 5:02 PM | Reply | Permalink
I believe you've already arrived at just about where you want to go. Events and Tsar Frank ("Little Father" of all Distressed Mortgagors) have pretty well made my arguments irrelevant.
The GSEs own what? half of the subprime and Alt-A mortgages? and Paulson's planning on having Treasury (TARP) buy up most of the rest? So, the mortgages will be modified.
That still leaves open the question of whether in modifying these mortgages, the owners (taxpayers) should reduce the principal, permanently, or only the monthly payments -- and if the monthly payments, only, whether the amount of the reduction is forgiven or added to the principal balance.
That is, what part, if any, of the adjustment should the taxpayers recover on a future sale?
What's your pleasure erica and how do you justify it?
October 8, 2008 11:55 PM | Reply | Permalink
Wow, I'm all a flivver. My pleasure would be:
1. Decree an end to foreclosures until the program is in place.
2. Transfer money to local agencies wherever possible to make administration as specific as possible.
3. Start with the neighborhoods that have been hardest hit.
3. Figure out what you want people to do in exchange for participating in the program.
4. Leave the loans as is--no rewrites, or the same people who made money writing these things up will make money rewriting them.
5. Provide a chunk of interest/principal on behalf of the owners each month to get these loans paid down fast. (Which does actually penalize the baddies a bit because they were expecting to make $400k off each $200k mortgage, but if the mortgages are paid down faster they won't make as much.) Might have to declare prepayment penalties null and void.
6. Homeowner has to pay taxes on the benefit (I think).
7. Program ends when the mortgage amount meets up with the values of surrounding houses.
God and the devil are of course in the details--your thoughts?
October 9, 2008 6:02 PM | Reply | Permalink
I have a question and maybe Ellen or anybody could answer Please.
By Reed Hundt - October 7, 2008, 11:14PM
“Did McCain suggest he was going to reduce Social Security benefits?”
I thought his comment was a little vague, and Brokaw should have followed up.
McCain mentioned about forming a Commission to discuss saving Social Security.
Years ago in Mesa, Arizona we were invited to discuss how to save S.S then.
Then we discussed cutting benefits and or both raising the retirement age.
That was the solution the Commission was exploring, to solve the upcoming S.S. projected deficit.
Is it possible that this current financial crisis has forced many of our near retirement citizens, to reconsider, that they need to work longer, because their 401 programs are not sufficient enough to supplement the check received by Social Security?
Has this crisis just forced the latter solution? No retirement at this time.
If you subtract what the projected outlay for this new group of retirees would have been and you now factor in, that many future retirees might have to work ten years longer, what is the difference in outlays?
Did the Government save money on one side of the ledger? The cost to finance the upcoming retirement of Boomers, has been moved out to later years?
I hope I’ve stated the question right
October 9, 2008 12:37 AM | Reply | Permalink
According to the Trustees of the Fund and employing their very conservative projections, Social Security is fully funded until the year 2051 -- at which time the youngest surviving boomer will be 87 years old.
I doubt anyone knows -- least of all McCain -- what he was talking about. Promising to appoint a commission is bluster. Commissions never accomplish anything in Washington unless there's a real problem that must be dealt with and, with respect to the soundness of Social Security, there isn't.
Your question, though, is interesting: whether a change in the median retirement age would affect the date of exhaustion of the SSTF. I'm afraid I don't know the answer (I would guess it wouldn't).
October 9, 2008 5:15 AM | Reply | Permalink
Ellen, thank you for your input
Your reply to erica, raised some thoughts of my own.
Did the meltdown of the housing crisis start to occur, when the ARM’S started to increase?
Though at the time I felt housing prices were outlandish, I knew of some who were making the payments, because the interest rates were low enough.
Principle + Interest = Monthly payment. Since we couldn’t adjust the principle we needed to adjust the interest rate.
When the Fed raised rates because of inflation fears, had they considered that many homeowners were going to be unprotected?
Now the Fed is slashing rates, but have the mortgage companies cut Thiers?
When the demand got so great for rewrites, the mortgage companies saw an opportunity, it wasn’t based on need, but greed.
It wasn’t till the rates went up and the homeowners couldn’t find a lower interest rate.
Then the monthly payments were now, unaffordable.
Then came the ripple effect when Construction related industries faltered. Affecting wages.
Had the Government intervened, by offering a product, that would have kept the interest rates low enough, until we could have worked it through the system, could this disaster have been avoided?
People could have stayed in their homes, reducing the pressure on oversupply; which in turn devalued everyone’s homes
There would have been no need to reduce the principle, as long as the people could afford the payment. With the right interest rate, payments are affordable.
What are Treasuries paying now, and could the government set interest rates on home mortgages lower than the profiteering mortgage lenders?
Finance home mortgages, through the Social Security Trust Fund, instead of accepting near Zero, Government IOU’S, collect 4% from the taxpaying, government supporting, homeowner. The cost of not providing affordable shelter is still a cost.
October 9, 2008 8:12 AM | Reply | Permalink
Check out this video about Sarah Palin. It's crazy hilarious.
http://www.youtube.com/watch?v=1exiyBYnJ00
October 13, 2008 12:29 PM | Reply | Permalink