Yep.
I disagree. The reason for the current mess isn’t that the mortgage securities aren’t making money from interest, but rather they are illiquid because the mortgage backing it has declined in value. By purchasing the mortgage at face value, all those bonds immediate become liquid again.
That is not optomistic. House prices have not dropped 75%!
It’s a thorny problem. If nothing is done, the resulting economic downturn is apparently untenable. If we give the money to banks, the “hey, where’s my pie” argument still holds, yet the target is much less distinct. It also fosters some class taunting (e.g., the inane Main Street to Wall Street chant). If we give it to banks, are the homeowners still on the hook for the full face value of the notes? Does giving funds to the banks do anything to stabilize the housing market?
OTOH, despite there being a direct target for animosity (though don’t take this to mean I’m trying to downplay it), if homeowners receive a reduction or other benefit that allows them to stay in their home, doesn’t that help the irate neighbor more? That is, by slowing the foreclosure slide and binge of houses on the market, won’t the value of the irate owner’s house remain steadier?
I’m not endorsing the plan. One thing that’s frustrating is that McCain has no real idea of what he’s talking about, so getting bits and pieces of it from him is like playing telephone. I’d have more respect for him if he’d say something along the lines of “I like this plan by Ant and Bee, and along with a team of expert economists would explore it further and implement it in the best way possible.” Rather, he’s giving the appearance of these as being McCain ideas and direction (because we haven’t had enough years of relying on a Decider). But since the idea is news to me, I’d like to fully understand it before I say it’s completely whacked — and it seems like it may have some things going for it.
Rhythmdvl, I see your point. But few people think in the long term. And it still strikes me as fundamentally unfair, since it will amount to a gift of thousands of dollars to one part of the population - and in some cases, the most improvident part.
It’s funny, but in many circumstances “it still strikes me as fundamentally unfair” sounds almost apologetic – as if that’s not enough. But fortunately (IMHO), fundamental fairness underlies so much of the law. Just try and come up with a reason to prohibit most insider trading that doesn’t eventually rest on “but…but… but it’s not fair!”
In this case, however, it seems that there is the possibility (again, I don’t know enough about the plan to say) that despite some unfairness in the “where’s my pie” vein, it might be overall better for the economy.
I think so far there are a lot of horrible things about the idea. But so far many of these arguments can apply to just about everything. What a mess.
Why is it necessary to ‘keep people in their houses’? I’m sure there is a sound economic reason, but I don’t know what it is.
Let’s say I took out a $500K ARM 3 years ago that I could make the payments on, but now that the rate adjusted, I can’t anymore, plus the house is only worth $300K. If I default, I essentially rented for 3 years and I lose however much equity I built, which can’t be much after such a short time. It’s a bad investment, not the end of the world. I’m not homeless, I still have the ability to pay rent, just not the payments on a huge mortgage. Obviously, if people can’t pay because they lost their jobs, that’s another story, but unemployment is not much higher than it was a few years ago, so I assume that’s not behind the ‘keep the house’ position.
If that’s the case, are we to expect this type of crisis every time housing prices decline?
House prices generally certainly haven’t. But we’re talking about the valuations of the mortgages on the houses supporting the toxic securities.
The rash of foreclosures is causing the supply of houses to dramatically increase. As the supply grows, price declines for everyone. If someone plans to sit in their house for the next ten or twenty years, what happens to prices in the short term is (relatively) inconsequential. But there are a lot of people who want to sell their houses (e.g., moving, retiring into a smaller place) as well as a lot of people who need to sell their house to avoid slipping into default. Keeping the market from further decline by forestalling even more waves of foreclosures (not saying whether this or any programme can) means these people will get a better price for their house.
The number of people in these groups is astronomical, and the effects are cascading. If, say, hundreds of thousands of retirees suddenly find themselves with two to four hundred thousand dollars gone from their house and another giant chunk dropping out of their retirement fund, all pretty much directly tied to the housing crisis (though of course there are a lot of other things in play, but I’m keeping this relatively simple), their relative loss of worth is going to spill into other areas of the economy.
Of course, from a Rand Rover perspective, there is still the question of “so what?”. But the vast majority of people seem to think that if government intervention can help stop a gargantuan economic downturn and catastrophic losses, it should be done.
No way. The old goat did not know it was in the bill. He brought it up like he brainstormed it. He just blew it again.
So is the next move for McCain to offer to buy every one’s stock at the value they traded at before the campaign season kicked off?
It makes horrendous economic sense and introduces huge moral hazard for American taxpayers to make whole the banks and the homeowners that created this stupid mess.