Tuesday, March 25, 2008

McCain to Homewners: Drop Dead

In a speech on the housing crisis delivered today to the Orange County Hispanic Small Business Roundtable, John McCain has proven once again that he knows little and cares less about "economics"-- particularly the impact of market forces on ordinary people. It is a horrendous speech -- ignorant, patronizing, devoid of serious solutions.

McCain's proposed measures boil down to meetings of bankers and accountants, unenforced pledges by bankers to be nice -- and, unbelievably, more tax cuts and less regulation for banks. His tone projects belated awareness and begrudged concern. And his grammar betrays reflexive sympathy with the most powerful actors in the farce.

First, the speech approaches the current crisis from a "while I was sleeping" stance. "While I was traveling overseas," McCain informs his audience, "our financial markets experienced another round of upheaval." True enough, but where's he been in the eight months of upheaval prior to his recent trip? Throughout, he speaks about solutions in the future tense, as if he's already President, someone has just brought him news of a new-breaking crisis, and he's prepared to take suggestions. "I will evaluate everything in terms of whether it might be harmful or helpful to our effort to deal with the crisis we face now....I will consider any and all proposals based on their cost and benefits....I am prepared to examine new proposals and evaluate them on these principals." Fired up, ready to go! Ready on Day 1...

Second, grammar betrays McCain's sympathies. By their verb constructs shall ye know them. In his grade-school exposition of how the crisis brewed, active verb constructions damn the follies of mortgage lenders (as they should) and borrowers (as they should in many cases):
A sustained period of rising home prices made many home lenders complacent, giving them a false sense of security and causing them to lower their lending standards. They stopped asking basic questions of their borrowers like "can you afford this home? Can you put a reasonable amount of money down?" Lenders ended up violating the basic rule of banking: don't lend people money who can't pay it back. Some Americans bought homes they couldn't afford, betting that rising prices would make it easier to refinance later at more affordable rates. There are 80 million family homes in America and those homeowners are now facing the reality that the bubble has burst and prices go down as well as up.
But when it comes to explaining why lenders went crazy -- that is, why they had no financial incentive to worry about whether loans they originated could be repaid-- suddenly we're in the passive construction, anonymous agent, forces-larger-than-all-of-us zone. When the verbs aren't passive, the subjects are inanimate objects - bets, instruments -- or unspecified 'people':

The other part of what happened was an explosion of complex financial instruments that weren't particularly well understood by even the most sophisticated banks, lenders and hedge funds. To make matters worse, these instruments -- which basically bundled together mortgages and sold them to others to spread risk throughout our capital markets -- were mostly off-balance sheets, and hidden from scrutiny. In other words, the housing bubble was made worse by a series of complex, inter-connected financial bets that were not transparent or fully understood. That means they weren't always managed wisely because people couldn't properly quantify the risk or the value of these bets. And because these instruments were bundled and sold and resold, it became harder and harder to find and connect up a real lender with a real borrower. Capital markets work best when there is both accountability and transparency. In the case of our current crisis, both were lacking (my emphasis).

Then there's breathtaking direct contempt for homeowners who have got into trouble:
Of those 80 million homeowners, only 55 million have a mortgage at all, and 51 million are doing what is necessary -- working a second job, skipping a vacation, and managing their budgets -- to make their payments on time. That leaves us with a puzzling situation: how could 4 million mortgages cause this much trouble for us all?

Five percent of homeowners, causing all that trouble for the virtuous 95% If only they could have been left to default without riling Wall Street...

Finally, there are the policy prescriptions. Less regulation for financial institutions:
In financial institutions, there is no substitute for adequate capital to serve as a buffer against losses. Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.
More tax cuts:

Even as financial troubles weigh upon it other parts of the economy hold up or even continue to grow. I have spoken at length in other settings about the need to keep taxes low on our families, entrepreneurs, and small businesses; to make the tax code simpler and fair by eliminating the Alternative Minimum Tax that the middle class was never intended to pay; to improve the ability of our companies to compete by reducing our corporate tax rate, which today are the second highest rates in the world; to provide investment incentives...

The kitchen sink:
...to control rising health care costs that threaten the budgets of our businesses and families; to improve education and training programs; and to ensure our ability to sell to the 95 percent of the world's customers that lie outside U.S. borders.
Meetings, meetings, meetings:

But I think we need to do two things right away. First, it is time to convene a meeting of the nation's accounting professionals to discuss the current mark to market accounting systems... We should also convene a meeting of the nation's top mortgage lenders.

And voluntary, unenforced pledges.

Working together, they [The mortgage lenders, called to said meeting] should pledge to provide maximum support and help to their cash-strapped, but credit worthy customers. They should pledge to do everything possible to keep families in their homes and businesses growing. Recall that immediately after September 11, 2001 General Motors stepped in to provide 0 percent financing as part of keeping the economy growing. We need a similar response by the mortgage lenders. They've been asking the government to help them out. I'm now calling upon them to help their customers, and their nation out. It's time to help American families.

Well thanks for calling on them, John. That'll show them! That'll take care of this mess.

Clinton and Obama ought to be able to make mincemeat of these inadequate, irrelevant, unconsidered proposals. That is, if they can spare a few moments from eviscerating each other.

Related posts:
McCain's economic bridge to nowhere
McCain to Europe: I'm not Bush
Which candidate would be the most bellicose President?
McCain: (Bill) Clinton fails the commander-in-chief test

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