John McCain’s laissez-faire tendencies
In “McCain Warns Against Hasty Mortgage Bailout ” the heir apparent to the Republican Presidency said:
“It is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.” … “Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy,” … “Some Americans bought homes they couldn’t afford, betting that rising prices would make it easier to refinance later at more affordable rates.”
Mr. McCain argued that even during the ongoing crisis, the vast majority of mortgage holders continued to make their payments.
“Of those 80 million homeowners, only 55 million have a mortgage at all, and 51 million homeowners are doing what is necessary — working a second job, skipping a vacation and managing their budgets to make their payments on time,” he said. “That leaves us with a puzzling situation: how could 4 million mortgages cause this much trouble for us all?”
The last question is the elephant in the living room. What the candidate doesn’t discuss is the fact that most of the failing mortgages come from the last couple of years. Those mortgages written fifteen or twenty years ago were based upon a 10% deposit on contract and the balance of the purchase money being paid on closing, usually with the assistance of a mortgage from a bank. No one was allowed to purchase a home with no money down because they wouldn’t have any equity in the house and would be more likely to abandon the house and light out for the provinces if they couldn’t pay for it.
In the past thirty years or so almost all home purchases have been with a hefty down payment. That worked out just fine when houses were affordable. In the past five to seven years the cost of housing has gone through the roof.
Houses that were worth a couple of hundred thousand dollars in the early 2000’s were going for four to five hundred thousand in 2005 and 2006. The purchases were completely divorced from reality because none of the mortgage companies that were giving the mortgages were looking at the financial condition of the borrowers. These no background check mortgages were the source of most of the trouble. Once the house was purchased the mortgage paper was bundled with other loans and sold to investors eager for greater profits than could be had in the stock market.
Candidate McCain says that many people bought house that they couldn’t afford. Well, Mr. Candidate, in New York three or perhaps four years ago a Cape Cod house was suddenly selling for over four hundred thousand dollars. These were houses that unless expanded were all on one floor and had 600 square feet of living space. I received calls from older people who bought these homes for less than five thousand dollars and now their taxes were being raised by the county because of the increased values.
In such a situation, what kind of house could you buy that wasn’t out of your price range. Since most people make less than $100,000 in Family income in my county (Nassau in New York) they couldn’t afford to pay for such a tiny house unless they could put down about $100,000 and then they would have to take a $300,000 mortgage, which many of them couldn’t afford.
So, when it became possible to buy a house with no money down hundreds of thousands of people did just that. It was either do it that way or not buy a house. After all, with the way the prices were rising there was no way to get into the market without overextending yourself.
What this all means, Mr. Republican Candidate, is that these people didn’t make a conscious decision to take a chance on the market going up, they took a mortgage the only way they could, hoping everything would be alright. And incidentally, those Americans who are having no trouble paying their mortgages are the ones with little mortgages that they took when they bought there houses fifteen and twenty years ago for half the prices that they were going for in 2004-2006.
Those four million problems are the mortgages that were created in the last few years to make it possible to sell houses for huge insane prices. The Candidate doesn’t want to bail out people who took foolish risks, but of course it is Ok, or so the Candidate says to assist the investment banks where their collapse would damage the banking system.
Well if we can’t bail out ordinary people, then forget about bailing out the financial houses that did everything that they could to make the fabulous money on unconscionably risky commercial instruments. Perhaps we should let the chips fall where they may instead of risking the peoples $30,000,000,000. Rescuing Bear Sterns and perhaps others. Let the market take care of itself, just like it did in 1929 and 1930.
Remember folks, there are plenty of apples in Dutchess and Columbia Counties that we can sell on the street when everything falls apart.
March 26th, 2008 at
I agree with McCain, “it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.”
I’m beginning to like McCain. He often takes the intelligent and rational position even when it is not popular. He’s the only presidential candidate I’ve seen in my lifetime with that kind of integrity. Probably the last.
The idea that ordinary people are incapable of making conscious reasonable decisions about the home they buy is simply classic flawed liberal logic. Of course people are capable of making these decisions for themselves. The problem is that a lot of people made stupid decisions and bought beyond their means. Both the banks and the buyers where complicit in an irrational charade that they are now paying for.
In regards to Bear Stearns, if the company had folded in a fire sale it would still have been bought by JP Morgan Chase or some other entity without government intervention. The Fed simply gave JP Morgan an incredibly cheap loan at our expense and they took advantage of it. Who can blame them?
Frankly, the implosion of Bear Stearns would just be another billion dollar bust in the massive American economy. Sure, it would have messed things up for a while, but this type of thing happens every year or so. It’s part of our economy.
March 26th, 2008 at
The 30 billion dollar guarantee was not just a loan, it is a guarantee that the American People must stand behind. Bear Sterns should have just been allowed to go into bankruptcy, which would have put everything on hold while the referee in bankruptcy evaluated their assets; some company or country would certainly have bought them, all without putting the American People on the line for the money. As it was the Fed rescued their own, something that is not likely to be allowed again without extreme regulation, and extremes are never good for the country.
March 26th, 2008 at
True.