McCain’s Housing Surge
Almost no one on the left is talking about McCain’s attempt to seize the economic debate last night (conservatives would be, but they heard it and went into shock). But it’s a funny gimmick that deserves closer attention. Here’s what McCain proposed:
Shaffer: With the economy on the downturn and retired and older citizens and workers losing their incomes, what’s the fastest, most positive solution to bail these people out of the economic ruin?
[snip]
McCain: Well, thank you, Tom. Thank you, Belmont University. And Sen. Obama, it’s good to be with you at a town hall meeting.
And, Alan (ph), thank you for your question. You go to the heart of America’s worries tonight. Americans are angry, they’re upset, and they’re a little fearful. It’s our job to fix the problem.
[McCain babbles about energy independence, taxes, and our debt before he hits his housing plan]
We’ve got to have a package of reforms and it has got to lead to reform prosperity and peace in the world. And I think that this problem has become so severe, as you know, that we’re going to have to do something about home values.
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.
Is 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. [my emphasis]
Mind you, this was McCain’s answer to the first question–he had come into the auditorium, gone immediately to his notepad to write down whatever he was coached on backstage, and then given this answer to the first question. As Andrea Mitchell reported after the debate, the McCain team had told her this was a big new idea that–they hoped–was going to help them reclaim the discussion on economics.
In other words, this was supposed to be the one policy idea that viewers and pundits took away as "news."
Now, on NPR this morning, they reported from a debate watching party in New Mexico where this worked with two guys–they cited McCain’s housing plan as a detailed proposal that made them believe McCain had solutions. But aside from those two guys in New Mexico, conservatives melting down over this answer, and Andrea Mitchell (who was told directly this was a big new idea), no one seemed to notice.
That’s probably partly because McCain–no doubt instructed to highlight this as the big new thing–buried it at the back of an incoherent answer.
Folks probably also missed this big new plan because–as Obama pointed out–this is not new. In spite of what McCain said about this being his proposal, the plan is already in the bailout:
Obama: And that’s why it’s going to be so important for us to work with homeowners to make sure that they can stay in their homes.
The secretary already has the power to do that in the rescue package, but it hasn’t been exercised yet. And the next president has to make sure that the next Treasury secretary is thinking about how to strengthen you as a home buyer, you as a homeowner, and not simply think about bailing out banks on Wall Street. [my emphasis]
(Here’s an Obama statement calling for such authority on October 1.)
Shorter McCain! Big news! I’m going to implement the plan passed last week!
It gets better, though, when you read the fine print:
AMERICAN HOMEOWNERSHIP RESURGENCE PLAN
John McCain will direct his Treasury secretary to implement an American Homeownership Resurgence Plan (McCain Resurgence Plan) to keep families in their homes, avoid foreclosures, save failing neighborhoods, stabilize the housing market and attack the roots of our financial crisis. America’s families are bearing a heavy burden from falling housing prices, mortgage delinquencies, foreclosures and a weak economy. It is important that those families who have worked hard enough to finance homeownership not have that dream crushed under the weight of the wrong mortgage. The existing debts are too large compared to the value of housing. For those that cannot make payments, mortgages must be restructured to put losses on the books and put homeowners in manageable mortgages. Lenders in these cases must recognize the loss that they’ve already suffered.
The McCain Resurgence Plan would purchase mortgages directly from homeowners and mortgage servicers, and replace them with manageable, fixed-rate mortgages that will keep families in their homes. By purchasing the existing, failing mortgages, the McCain Resurgence Plan will eliminate uncertainty over defaults, support the value of mortgage-backed derivatives and alleviate risks that are freezing financial markets.
The McCain Resurgence Plan would be available to mortgage holders that:
- Live in the home (primary residence only).
- Can prove their creditworthiness at the time of the original loan (no falsifications and provided a down payment).
The new mortgage would be an FHA-guaranteed fixed-rate mortgage at terms manageable for the homeowner. The direct cost of this plan would be roughly $300 billion, because the purchase of mortgages would relieve homeowners of “negative equity” in some homes. Funds provided by Congress in the recent financial market stabilization bill can be used for this purpose; indeed, by stabilizing mortgages, it will likely be possible to avoid some purposes previously assumed needed in that bill.
The plan could be implemented quickly as a result of the authorities provided in the stabilization bill, the recent housing bill, and the U.S. government’s conservatorship of Fannie Mae and Freddie Mac. It may be necessary for Congress to raise the overall borrowing limit.
Okay, first of all, I realize that all the smarty pants decided that the bailout plan didn’t pass the first time in the House because it was called a "bailout." I’m sure the first thing the McCain team did was think up some new name for the plan. But "resurgence"? Is John McCain so forgetful now that they had to name this plan after the only other policy he’s running on, the escalation surge in Iraq? Also, you gotta love the way they "shortened" the name, "American Homeownership Resurgence Plan" to "McCain Resurgence Plan." I can’t decide which is more amusing, that they’ve equated "American Homeownership" with "McCain" (though with Cindy’s eight houses, I guess it makes sense), or that they’ve so obviously tied this plan to any McCain "resurgence" in the polls.
And then, a technical point. "Purchase mortgages from homeowners"? How many homeowners out there "own" mortgages to sell? Don’t the banks own the mortgage, and the homeowners just pay it off? In this phrase, and later where they emphasize their plan to "relieve homeowners of ‘negative equity’," the McCain campaign is trying to pitch a plan that helps banks as much as homeowners as a real populist program.
Then, note the irony of a "McCain Resurgence Plan" that has to specify "primary residence only;" I understand the policy reasons, but I think it’s particularly important for those who can’t remember how many homes they own.
And then, finally, the admission that this great new plan is really just the bailout plan passed last week. For example, the bailout already appropriated the $300,000,000,000 (yeah, right) that will be needed for this plan: "Funds provided by Congress in the recent financial market stabilization bill can be used for this purpose." And the bailout, the housing bill (which McCain did not vote on), and our ownership of Fannie and Freddie means Treasury already has the authority to do this. "The plan could be implemented quickly as a result of the authorities provided in the stabilization bill, the recent housing bill, and the U.S. government’s conservatorship of Fannie Mae and Freddie Mac."
All new! The McCain Resurgence! Claim credit for the bill passed last week and hope that saves your campaign!
Hey Marcy, thanks for this post.
TobyWollin has an OxDown that asks questions I could see you digging to find the answers to…
http://oxdown.firedoglake.com/diary/543
Thanks ew.
digg
I do have to ask what was McC’s true intent?
Resurgence of? No, really, that’s a question!
My guess is it’s not really the people…
Isn’t that FDR’s plan?
(my bold)
Hmmm…
No, the HOLC bought notes and mortgages from failed Savings and Loans after they had been taken over by the FSLIC. They owned the entire loan, so the purchase was possible.
OOOps, my bad, it was the RTC that bought the loans from the S&Ls.
I guess either way, my point was I do not think that will be doable this time around…I may be misunderstanding this…How can we effectively do it the way McC suggests? And I do not think FDR plan will be a full working option, would it?
(Most of these questions you answered @ 7)
One thing he doesn’t specify is whether the govt, or the bank, will be the mortgage owner going forward.
But, to address klynn’s point, it’s just a belated recognition that we’re going to have to give relief to homehowners as well as banks–and an attempt to spin it as solely benefitting homeowners.
Yesterday Holtz-Eakin said McCain would not have a massive housing bill.
“Isn’t that FDR’s plan?
The HOLC was established in June 1933 to help distressed families avert foreclosures by replacing mortgages that were in or near default with new ones that homeowners could afford. It did so by buying old mortgages from banks — most of which were delighted to trade them in for safe government bonds — and then issuing new loans to homeowners. The HOLC financed itself by borrowing from capital markets and the Treasury.”
It is an overly general description of what HOLC did — largely because it ignores the problems FDR faced in 1933.
Remember, by March of 1933 the Banking System was within a day of collapse, and FDR closed all the banks, sent out the bank examiners, and discriminated among three classes of banks. Those with enough liquidity to re-open, Those that needed restructuring, and Those that were failures and needed to be closed up, with their assets liquidated.
The agency, which had been created by Congress during the Hoover Administration, The RFC or Reconstruction Finance Corporation, was the key institution FDR used to recapitalize banks in the first two catagories. RFC provided operating loans to banks, and in restructured banks, placed public trustees on bank boards.
Because these banks held most mortgages — and it is important to remember that a mortgage in 1933 and earlier was a totally different animal than what we understand — many home owners were left without a lender — their bank had been closed. But the common kind of mortgage was also a problem, for the most part they were 5 year notes with a balloon payment at the end, and if a borrower could not pay the balloon, the idea was to renegotiate a new note for another 5 years. After the crash of 1929 and the great losses Banks had taken speculating in the stock market, they had stopped writing notes for customers who had a balloon coming due. Thus in 1933 there was a huge inventory of mortgages not being serviced by lenders.
What FDR did was create HOLC as a piggyback on top of RFC, which was till 1933 just lending to banks. Homeowners with a mortgage could go into HOLC offices (Home Owners Loan Corporation) and establish basic credit worthyness, and get a new mortgage, 20 year fixed rate terms, with a governement guarentee. As RFC then restructured banks, and made loans to banks, they also began to sell performing assets to banks — performing assets being a mortgage being paid down in a regular and timely fashion. HOLC was established in the first 100 days by executive order, and lasted until about 1935. During that period HOLC actually re-wrote about 20% of Home Mortgages — had less than a 1% default rate, and finally disappeared in the early 1950’s when the 20 year mortgages were paid off.
So what’s different between now and then? First, Securitized Mortgages. The Assets (houses) are rarely on the books of Banks or S&L’s. They have been chopped into hundreds if not thousands of slivers, and sold off. There is no “Lender” in the classic sense, what we have instead is a fancy set of collection agencies that work for the holders of securities all over the world. Mortgage terms give them the power to foreclose, for which they earn a fee. But the collectors have no interest in the asset, nor do they have any interest in the neighborhood or community in which the asset exists. (a local bank or local S&L had a clear interest in the economic health of a local area.) I think it is going to take a lot of work to re-regulate what is a mortgage so it incorporates a relationship between borrower and lender through the running of the mortgage, and in addition, recognizes the dependency of local government and whole neighborhoods on stable property values. In effect, somehow all those securities will need to be unwound so as to actually have a lender. This makes the present situation very different from what FDR used to salvage about 20% of American Mortgages between 33 and 36.
HOLC was wound down when the FHA Program was created. FHA adopted the form of mortgage created by HOLC, but it was much more an economic pump-priming effort, focused on encouraging new construction of fairly basic housing that met fairly high code standards. By 36, FDR was far more interested in getting construction going, getting logging operations back in business with a market for timber and other building products. But what HOLC produced was critical — the 20 year fixed rate mortgage with the lender insured for a performing asset, but with a high degree of regulation of the market — including in troubled institutions, one or several public trustees sitting on the board.
OMG, there’s an actual plan? I thought this was nonsense when I heard it and threw up my Oxdown diary, but they are serious? There’s a working paper explaining this idea? Who wrote that?
Let’s assume that when they say “buy mortgages” they mean buy the promissory notes secured by the bad mortgages. The notes are held it trust under a trust instrument which I assume runs 100 pages or more of fine print. The Trust can’t sell them at less than face value without consent of beneficiaries of the Trust, who are the holders of the the CDOs or whatever they might be named. The rules usually are that sale requires a majority of votes. How are you going to get that approval?
How are you going to set up a Federal bureaucracy to handle things like identifying the people eligible for the refinancing, valuing the property, checking the income of the owners to make sure they can handle the new payment, and so on. All over the country.
If you bought the promissory notes, you’d have hire a mortgage servicer to handle the payments and collections.
The bankruptcy amendment is the solution to all these problems. It is focused on the people who need this help. The solution can be tailored to the needs and ability to pay, and the holder of the note participates. Bmaz has some concerns about the ability to affect the noteholder, but I am sure that the holder is encouraged to participate, and if they choose not to, the bankruptcy court can act without them.
That was the other thing I thought–but didn’t say.
I understand this is in the plan as it exists. McCain pretended it was new, but more importantly, McCain presented this as the way to affect the foreclosures, not the banks.
But it’s a choice that bails out banks (we’re buying over value), and makes the central govt much stronger, rather than using the courts and localized solutions to address the probloem.
So isn’t this deal just turning the foreclosures into rent-to-own, federal housing projects?
The silence of the Gooper base makes me think they either suicided or have some sort of secret knowledge of crossed fingers or impending “just kidding”.
What it says to me is that the mcsame knows what I know and that is that lots of innocent folks lost their homes to violations of TILA and RESPA laws.
I can’t get over the fact that every single show I see about the mortgage crises leaves this corruption out of the story. I can’t get over it. No where do they mention forced insurance, or accounting error in pay off figures when banks have been bought by another bank, or lack of communication that almost all of these predators engaged in once someone was in foreclosure or the doubled payments resulting from fees.
He knows or he wouldn’t be suggesting that they buy out these loans. I think the republicans and democrats are trying to cover up this corruption. They want everyone to believe that it was that poor people got loans not that the industry was desregulated and that all the laws that used to protect the consumer were undone by Bush. http://oxdown.firedoglake.com/diary/543
This has been an absolute nightmare for many people. In the end, I contend that there are some families that will deserve their homes back.
You should go read TobyWollin’s post after your comments…
BTW EW, TobyWollin just dedicated a timeline to you in the comments of the Oxdown linked to @1.
Can somebody explain the following to me? If we can’t figure out who owns these loans in most cases, how is there a foreclosure? Who gets the sheriff to throw the family out of the street?
From my understanding, it’s THAT question which is making everything “tank”.
The notes and mortgages are held by a Trust. The Trust has instructions as to when to foreclose. When the note goes into default, the Trust tells its mortgage servicing company to foreclose. The notes and mortgages held by the Trust are collateral for several ranked CDOs, each of which is entitled to payment after the higher ranks are paid. This is what people mean when they say the mortgages are sliced and diced.
At least this is how the foreclosure should work. In practice, the chain of title is broken, the Trust can’t find the note to prove it is the holder and so on.
And didn’t the notes get sold “in bulk” to foreign banks and then resold sold over and over?
“Can somebody explain the following to me? If we can’t figure out who owns these loans in most cases, how is there a foreclosure? Who gets the sheriff to throw the family out of the street?”
When a purchaser signs one of these new fancy mortgage agreements, among other things they give up most if not all consumer rights. The Collection Agency doing the foreclosure acts, for a fee, in place of the owner of the loan. The incentive is all constructed around earning the fees in this system.
So do I understand that a face value $400,000 mortgage, where the “homeowner” put nothing down and even had a negative amortizing loan, if the property even could sell today, which it can’t, it would be listed for at most $300,000, the government is going to purchase this mortgage using our tax dollars at the face value of $400,000, making the banker happy-happy and then renegotiate the debt for the reasonable value of $300,000 for the benefit of the “homeowner”?
So this is pitched as a win-win, happy banker & happy “homeowner”, just as long as you ignore the TAX-PAYERS who just got robbed in order to socialize the banker’s right to profit $100,000 after he made a bad loan in what everyone could see would soon be a declining market?
Holly SHIT!!! Talk about welfare for the RICH. You know the regulation of capitalism should include vacuuming out our wallets thru the long arm of Uncle Sam.
I don’t know. My mortgage is Homecomings Financial a subsidiary of GMAC. They have HUGE legal teams to fight the foreclosures in court and they often win because of the deregulation of these laws.
In my case a lawyer in St. Louis MO. handled all the legal work but Homecomings was centered in TX. Now it has moved out of TX to NC and MN. It central location and billing center is a box office. It moves around.
But the lawyer in St. Louis handled all the foreclosure and refinance communications. He did not return a single call to me, even when I said I could pay off the foreclosure.
After he got his bail-out plan on the floor, the next thing on his list was to insult Tom Browkaw.
When McCain answered “buy the bad home mortgages” if I had false teeth they would have fallen out. McCain has never thrown the working class a few bones. Over the past weeks I have heard several famous economist say “buy the bad home mortgages” in response to the bailout/rescue/ investment.
This is the fifth time I have heard McCain repeat the false and debunked claim that the Iranian President said “wipe Israel off the map”. The second time during the debates. McCain has been allowed to repeat this lie on the Chris Matthews show, This Week, and Face The Nation. (those are the times that I have heard him, sure there have been other times). Palin repeated this false and inflammatory misquote during the Biden/Palin debate.
Now we know Lieberman, Ledeen and many other warmongers repeat this false statement…but why does the press allow them to repeat this lie?
Of course the only question about Israel was “would the U.S. attack Iran if Iran attacked Israel” We know what the answer is. Yes.
We know the more likely scenario and the question should have been. If Israel pre-emptively attacks Iran based on unsubstantiated claims will the U.S. follow?
Was surprised that Brokaw did not ask any questions about the recent announcement by five former Secretaries of State who support negotiations with Iran.
Marcy,
They had a good reason to re-name it from “American Homeowner’s ReSurgence Plan” to “McCain Resurgence Plan.”
Think of how they’d have to pronounce the acronym for AHRSP…
A nit, but an obvious one:
Unless I was in a parallel universe last night, I believe it was Tom Brokaw that emceed the debate.
Second:
The “mortgage” is the document you sign that pledges the house to the lender if you don’t fulfill the payment obligation.
Per the Transcript at CNN that Marcy pulled that from, “Alan Shaffer” is the audience member that asked the first question.
You’re right. I forgot. Apologies.
There was an interesting sidelight discussion of another sector of the universal bailout, two days ago heard in fragments on FreshAir, where TGross interviewed an author of books about petrodollars and the like. The gist was many processes created an unregulated new market for commodity oil futures into which the most solvent investment banks put money. One interesting outcome, according to Antonia Juhasz, is entities like Morgan and Goldman became oilco owners to a degree sufficient to obtain insider understanding of markets, to develop the capacity to design the most stable derivative security instruments. This was depicted as still fairly uncharted territory, as the venue is unregulated within the US, but as relevant to the more visible bank crashes and correlative government proffers of various forms of funds to shore up mortgage involved instruments, more circuitous than the 2004 plan simply to raid social security and develop a dual set of books to fund war out of that till, but a gambit guaranteed to generate enhanced scrutiny when the profiteering phase began to shift investment markets. The skinny was investors began decades ago searching for counterbalances to the then predominant oiltrade regional organization, eventually devising the idea of an unregulated commodities futures market open to oil-related investment, finally implementing it during Bush’s first term. I think it is new circuits like these that help explain the money drain and the connectivity to collateralized mortgage debt, and its inherent problems when there are overarching market destabilizing factors at work. And, yeah, McCain’s mortgage bail imprimatur is affixed to what every other congress member wants to present on their respective campaign trail as a collaborative guarantee to voters that government is trying to protect ownership of homes. The way I understood the bill the president signed was Paulson has an option, but no obligation, to give government a true equity role in mortgages it buys, which is a quasisocialistic feature a lot of libertarians and conservatives might consider a bug not worth testing, which goes beyond McCain’s blanket reassurances, which were scarcely novel copyrighted Republican campaign planks. Lots of people are working on the matter.
On an OT part of the candidates’ show last evening, I wondered briefly glimpsing the Ossetia Georgia comments by both candidates, whether that fertile topic was discussed more deeply.
Bringing this note to a geographic circle, Morgenson et al pointed out last month that mortgage secured debt instruments were popular among some European finance houses as sound investments, adding to the clamor for the US to solve the devaluation problem without bankrupting select Continental central banks.
Antonia Juhasz was on Democracy Now too.
http://www.democracynow.org/20…..nia_juhasz
I’ll have to review your pithy comment tonite when I have more time. However this phrase caught my eye, and I would like you to elaborate it, especially the extent to which this plan has been implemented: “… the 2004 plan simply to raid social security and … fund war out of that till…”. Thanks.
Thanks for the note about the Gross interview, JL. There are some puzzles as to motivation that still need to be worked out, and some of the answers just might come from that direction. As well as the next scam to look out for.
As to the dispersion of our debts, some early indicators of the horror that may be yet to come were the Norwegian muni fund that blew up on U.S. mortgages last winter, a couple of European pension funds iirc, and most embarrassing of all, the trips to China Alphonse Jackson and Paulson made for the express purpose of suckering the folks over there into buying yet more mortgage- and other asset-backed securities.
The American guys apparently thought that there had been some miscommunication regarding recent auctions. The Chinese assured them that there had not. I think these trips, especially Paulson’s, might have been the sledgehammer that was needed to convince certain folk in executive Washington that they had a big problem looming.
Oh yeah, just heard an NPR report about China & U.S. securities that mentioned earlier trips by Jackson that resulted in MBS purchases, but not this trip, that resulted in a dis, which by July 2007 was the only conceivable response. Also not mentioned was this trip by Paulson one month later.
The Chinese investors were undoubtedly naïve earlier in the run of this thing, but they got wise much sooner than the NPR report makes it seem —and furthermore, much sooner than the penetrating strategists in Washington seem to have realized.
Ot
Obama hitting Ohio hard the next couple of days
http://my.barackobama.com/page/content/ohhome
Dayton,Cinci, Portsmouth, Chillicothe, Columbus.
Former Senator Lincoln Chaffee stumping for Obama in Columbus (only Republican Senator to vote against the 2002 war resolution). Also hammered John Bolton during the nomination hearings Have the deepest respect for this man.
http://my.barackobama.com/page/content/ohhome
The location in Columbus for the round table with Chaffee is going to be too small. The Rusty Bucket on Lane will not hold the number of people that will respond.
EW, you should come down for this!
I believe it is happening right now. Can you make it?
Goodness, I am off a day! I would have LOVED to have had the chance to go! I’m only 15 minutes away at most, but I do not think I can get a sitter..I was thinking today was Tuesday…Need.More.Coffee.
McCain did not hesitate to say that he would cut Medicare.
In Ron Susskind’s book “The Price Of Loyalty” Former Secretary of the Treasury Paul O’neil talks about how he and Greenspan were going to take a sizable amount of the Clinton surplus and cover the upcoming social security, medicare and medicaid shortfalls for the boomers. While feeding the Bush tax sharks their promised tax cuts
No need to worry about that surplus now.
At the DNC in Denver during the senior caucus the Republicans agenda to bust (privatize) Social Security was the focus. I think McCain is going to get drilled on this all of this month
OT: NRC report on data mining is out (h/t Lichtblau). EW may be able to get a printed copy. I don’t think it is online yet.
OT
My central Ohio high schooler just came home from his conservative neighborhood high school. Word on the street, general consensus of eligible high school voters is:
drum roll…
“McCain acted like a jerk last night. Obama seemed rational and concerned about the state of our country and seemed more focused to the task of stabilizing our nation.”
and as for the comment “that one!”
Most received it in a racists context, coming out of McC as he point towards Obama….Many thought it was rude, unprofessional and dehumanizing.
My son said, “It was like he was pointing at someone in a criminal line-up… “‘That one, he’s the one I saw do it.’ He’s trying to pin a criminal label on Obama. It’s almost like a campaign approach of racial profiling.”
I remember son of klynn, klynn. He posted once or twice, yes? He is very smart, but then, he is son of klynn.
Thanks…
I shared your comments with him. His response, “Wow, that’s so nice! Is skdadl the commenter from Canada?”
How’s that?
He sends his greetings.
Please tell son of klynn that there are a whole bunch of us here. Be afraid; be very afraid. *wink*
How many of these extraordinary children do you have? I’m already in love with the young one who spoke so touchingly to the grandmother cashier. You *really* need to write a how-to book for rearing children!
From Barack’s campaign today:
14 – 17 I really don’t think there is a huge problem in the ownership of the notes and ability to foreclose, though. I think the big problem from the lack of identitification issue is the credit default swaps.
Those kinds of unregulated instruments (cds for bonds and mortgage backed securities) are the tiger whose tail no one will grab. They are the backbone of the shadow banking or shadow financial system and until you get a handle on them, you can’t really address the slides – all you can do is run around with your hair on fire.
We pretty much have two (more than two, but for purposes of simplification, let’s go with two) issues on meltdown – the housing issue vis a vis keeping people in homes and the housing issue vis a vis the financial meltdown.
McCain’s “plan” doesn’t do much for either, otoh, it’s not like Obama has been a beacon for these rocky shores.
There are all the issues masaccio lists and the ones he started to tire out before listing as well, with the concept of having the treasury buy the “bad loans” BTW, Roubini deflated the concept that the valuation problem is a subprime problem a long time ago – it’s an across the board valuation problem. We had to make up some kind of value for the debt we were accumulating and RE was the best place to create the false value.
In any event, McCain doesn’t even pretend to try to deal with the economic issues beyond the “bad” loans of having a big chunk of real estate suddenly get a “new value” based on the fact that the loans were in default only. But if that “new value” is, indeed the new “to market” number, then what happens to a) the value of the non-defaulted mortgages held on similar properties and b) new sales figures for homes being conveyed in areas where “defaulted” mortgages had “new values” put on the homes – for just two areas?
And what happens to the unregulated cds that were betting on payoffs at the old value? There’s a biggie.
The discussion really needs to be about the fact that real estate in the US was overvalued for years to allow people to live off of borrowings against that inflated value while there was no real job growth and home income growth – delaying the pain for political purposes. So if you have massive overvaluation of the single largest investment for most of middle and poor America, and the world (which has been funneling 80% of their savings to the US) has caught on, how do you revalue the real estate to true market and not crater most Americans?
Add on the cascade effects of the shadow banking system collapse, as so many of its unregulated bets were placed on that real estate value, and you will understand why Paulson and Bernanke have been so desperate to try to keep the asset value, the RE value, protected by buying at book or inflated market v. real market – why they suddenly don’t really want to have the “free market” intrude on valuation.
The shadow financial system cds are projected to be – without anyone really having any particularly good idea or way to check – about 50-60 trillion. And no one knows the cascade of defaults that any particular mortage security default will cause in those instruments. And the fact that banks and investment banks were allowed to load up on them without ever creating any correlative slush fund for defaults, just widens the impact.
It’s not even McCain’s idea, Obama pointed this out last night in the debate! While saying he would do the same. In his response to Oliver Clark:
Robert Fisk nails it again
Robert Fisk’s World: When it comes to Palestine and Israel, the US simply doesn’t get it
Biden and Palin hid like rabbits from the centre of the Middle East earthquake
Saturday, 4 October 2008
Palestinians ceased to exist in the United States on Thursday night. Both Joe Biden and Sarah Palin managed to avoid the use of that poisonous word. “Palestine” and “Palestinians” – that most cancerous, slippery, dangerous concept – simply did not exist in the vice-presidential debate. The phrase “Israeli occupation” was mercifully left unused. Neither the words “Jewish colony” nor “Jewish settlement” – not even that cowardly old get-out clause of American journalism, “Jewish neighbourhood” – got a look-in. Nope.
http://www.independent.co.uk/o…..50812.html
This issue is as shut down as ever not only at the debates, the MSM but also the so called progressive blogosphere
ot, but important
did anybody else notice that when paulson started talking, the dow jones industrial average was at +75
after paulson spoke, the dow jones industrial average finished the day at -200
with results like that, you would think paulson would avoid public speaking while the market is open
So what’s different between now and then?
I think you have to also add the derivatives market/shadow financial system, destination of 80% of the worlds savings in the US, and status of the US as an overall huge debtor nation, together with lack of access to resources (energy and new investment as we have run up our borrowing for non-asset related debt) currently needed to fund continued GDP growth that would be necessary to grow our way out of the problems the way we rallied to grow our way out of prior economic problems.
Some of those are why I think Obama’s go green investment approach is a kind of necessary element to resolve the problems – both to grow jobs and grow access to resource (and why I think his adoption of “and hey, let’s drill everywhere too – will that make you like me more” plank is silly – we will never control the oil and gas asset that we need without conquest bc we only have about 3-4% of the world’s reserves).
But we also have to realize that we’ve taken on tens of thousands of dollars of debt per family during the Bush adminstration and have only concentrated wealth upwards – without spreading out access to that wealth for the people we have burdened with the debt to have a realistic opportunity to repay it. And no one other than Edwards has been willing to say what really needs to be said on the spending and taxation front – that we will have to start paying off our debt and everyone, not just the uberwealthy, will be stuck having to adjust lifestyles.
Th, th, th, th, That’s All Folks!
Well, today was the day when if it could be fixed (temporarily), it would have been. The globally orchestrated interest rate cut by multiple Central Banks, simultaneously, was unprecedented. It SHOULD have sent the markets soaring on a short-squeeze-induced rally of epic proportions. Here’s why it didn’t work today…
The shorts serve a very important purpose in the FED/Treasury Dept. strategy for manipulating the stock markets (Google “Plunge Protection Team”). When sentiment is sufficiently negative to load up the speculators on the short side, the Government’s Operators come out with their “Open Mouth Operations,” announcing news they know will cause the shorts to cover their positions (buy them back) en masse. The PPT also jumps into the market with both feet to get the ball rolling, buying stocks with both hands…as they did in the futures market this morning, causing a 300 point up-move in the futures. They do it in ways to make it exceptionally obvious that they are ultimately in control. They want the traders to see them do it, and fear them.
By eliminating short selling from a high percentage of the stocks traded, they eliminated their own ability to “game the market” at their own whim. They completely underestimated the downside of changing the rules (banning short selling) – eliminating all the “rocket fuel” that they had formerly relied on to whip the speculators in the other direction. Today was “supposed to” be a 800 point up day in the DOW causing investors to cease pulling their money out of Money Market Funds. The sell off into the close will cause Asia and Europe to crash tonight. They threw the kitchen sink at it, and now they’re just missing a sink. Next comes the towel.
Welcome To Gameoverville.
Complete OT, but can someone explain to me why Obama felt compelled to get gushy and giddy over selling 6 Billion in arms to Taiwan during the midst of all of this. Like we really need to be poking China in the eye right this very minute? And arming more and more of the world.
Never mind – I keep forgetting the two parties are mostly one party, with different wardrobes.
OT
B O R I N G ! Shame on on all the pundits – left, right and middle – who poopoo last night’s debate as boring.
49 – it really is disturbing that they didn’t get more of a toe hold from the coordinated rate cut. It gives you this very sinking feeling …
I think there are some other elements too, but your point on the ban on short selling working against their rate drop strategy is a big item. That’s where they are now, though. The boat’s leaking in so many places that you can’t plug this leak without pulling the plug out of that link.
A lot of Roubini’s stuff is for-fee, behind the wall, but even what he makes available publically as the teasers is good stuff, and if you sift through youtube you will find lots of interviews he has given. His site also has the full text of this Oct 5 interview with the Council on Foreign Relations up:
http://www.rgemonitor.com/roub….._relations
As you can see from some of the actions that have taken place this week, after months of completely ignoring “Dr. Doom” or ridiculing or berating his points, once Paulson and Bernanke and Cox realized there were not enough lifeboats on the Titanic, they finally tried to implement some of what Roubini has put out there, but it’s not just going to be too little, too late, Roubini has said for quite some time now that even enough and on time can’t stave off the global recession we were on course to trigger.
He’s a good, if not reassuring, read.
McSNUB Video (32 secs.)
Obama is in McCain’s head…
A made for TV moment.
Watch Vanderhei on Hardball. He makes a good point about how both campaigns are playing these games but McCain’s campaign can’t hide it as well. He doesn’t give examples but it rings true.
More OT – apparently even the way too delinquent and heavily politicized investigation that was finally launched into the Afghan bombing that caused worldwide revulsion in Sept couldn’t pull of a whitewash.
http://www.nytimes.com/2008/10…..ref=slogin
Take a look at the three dead babies wrapped up from the pics originally running with the only story:
http://graphics8.nytimes.com/i…..ry.190.jpg
and see if you can figure out why in the world American troops would have been “not welcome there”
But hey – supporting democracy, God’s mission, booyah. It just gets so depressing to see it all and to realize that, generationally, we’ve pretty much signed off on the trade in of “soldiers” who protect civilians for the new creed of “warriors” who make war, and on torture and politically approved killings and political use of the Dept of Justice to harass and imprison political enemies. The debts that have been accruing aren’t all financial – the moral ones have mounted up just as fast and high.
“The Emperor’s new foreclosure!”
Thanks for reporting and dissecting this one!
Hoo boy, an awesome amount of substance went through last night’s Dismal Debate – a be-jeebus more than it may have felt like at the time, or that can be disposed of in the space of a blog comment. I’m going to cut up my take into bite-size pieces, starting with the POV of Fearless Leader Ms E Wheel’s noting McSurge wants “his” toy re-outfitted as a nostrum suitable for export into Afghanistan, and now import back home.
Haiku On The Senator’s Surge
O sacred Surge,
Answer to everything;
Born humbly in a Baghdad manger,
Now reborn,
Perfect in Poughkeepsie.
Shorter Senator’s Haiku to the Surge:
To a hammer, everything is a nail.
What’s bugging the Freepers is that the Magic Surge Power McCain has managed to insert into the Bush/Dodd Bailout through his miraculous feat of immaculate conception provides a possible vehicle for a Democratic administration to keep a roof over the heads of millions of voters who’ve opted for some color other than white to put on their skin, for which said voters, assuming they are able to recognize their self interest, can reasonably be expected to work to the benefit of Democratic candidates, not just now but for generations to come.
What the Freepers miss, or rather, given they are after all Freepers and so miss just about everything, is that the models for America’s future, near- to mid-term at least, have narrowed to three:
[1] Darfur, with millions of starving nomads wandering about;
[2] Sweden, the state acting as house nanny; and
[3] Ruloflawya, with universal access to Judge Hardy to rule on the equities between homeowner, the kindly, generous and well-meaning Nell Trueheart, and the mortgage holder, that heartless, rapacious tinkle-down capitalist Snidely Whiplash.
Freepers long for Darfur, but what with 9/11, Iraq, torture, GTMO, FISA, institutionalized cronyism, Katrina etc already on the books, the out-of-touch numbskull currently in the White House perceives his legacy is already so deep down in the dumpster, were he to do nothing now, it might be incapable of being rescued by ex post mis-facto Trumanization, and he wouldn’t have left no argument for being less hopeless than Buchanan, President of the Know Nothings.
[That’s what his legacy is down to: hoping to leave behind a trail of Talking Points to allow others to argue he MIGHT not have been the Worst.]
His similarly out-of-touch preferred successor responded so late to emergency siren that it’s taken him a couple of weeks to see that, while unlike the Water Boy he could run on Darfur, he can’t both do that and win this election at the same time.
So what to do…what to do… and having looked over the remaining options for any signs as to which might be bear the strongest evidence for having derived from the Almighty Power and Wisdom of the Awesome Universal Surge, well, Sweden’s pretty much the obvious choice.
One day in my early post-baby days, there was this kid in my class in kindergarten or grade 1, with whom I was engaged in dispute over who’s turn it was next on the teeter-totter, who faced with my deeply reasoned and forensically formidable argument about my having “been here first”, sing-songed in response: “Liar Liar Pants On Fire, Hanging On A Telephone Wire”.
By which I was momentarily taken aback, partly from its audacity [There were at least 3 other kids in line between me at the front and him at the back], but perhaps almost as much by the poetry of its conception, and to which I responded with words to the effect of: Where did you hear that? the rejoinder to which was: I made it up. It just came into my head and I invented it.
After half a century I can’t recall the kid’s name. Henceforth I resolve to refer to him as “McCain”.