John McCain's Open Invitation to Default

Wow, you know things are bad when the debates between George Bush and John Kerry in 2004 had more substance and were more entertaining than last nights stinker! Strange times indeed.

Paulson Pick for TARP Head as Good as the rest of His Decisions
Let's play a game. Suppose you had an imploding economy that is saddled with so much debt it is going to be near impossible to bailout. Imagine that an economic slowdown that threatens to morph into something more sinister is at hand. Try to envision how complicated the TARP will be to implement. Got all that? Now who would you put in charge of this plan? Who would inspire confidence that this will work out?

It does not matter who you picked. Hank Paulson has hand selected Neel Kashkari for the job. Besides having a name that lends itself to funny word play (Cash n Carry?) this guy is all of 35 years old!

You read that right. 35 years old. Now understand I am not an age discriminator, but I am 32 myself. The last real recession in 1991 I was in High School and so was Mr. Kashhari (or he was just entering college). During the tech bust I had been at my first professional job for just 2 years. Mr. Kashkari obviously must be super talented. I am sure he is very smart (well as smart as the folks that brought this mess anyway). It just seems to me a little more experience may have been prudent. While Paulson plans to nominate a permanent position holder, this selection seems very strange. Not exactly confidence inspiring.

John McCain's Open Invitation to Default
The only fireworks from last nights snoozer of a debate came right at the open when John McCain stated his plan to fix the economy. His idea will "fix" things alright!

McCain said that he would order his Secretary of the Treasury to buy up bad mortgages and then issue new ones to troubled home occupants. The new mortgages would reflect the new lower home value of course. And the taxpayer would eat the difference. Great stuff indeed. And McCain is the Republican nominee!

Let us take at look at this for a moment.
-Mortgage is for $200k, occupant unable (unwilling?) to pay
-Buy mortgage for $200k, issue new mortgage for $150k at low rate
-Transfer loss of $50k to taxpayer

Sounds great, Yes? Well there is a few problems. For arguments sake we will leave out the whole securitization thing as this calls into question whether pooled mortgages can actually be spliced back this way. Do you see any problems? Never mind the whole transfer to taxpayer the losses thing, that is old news and we are moving on. What happens when this occupants neighbor gets wind of this deal? If the next door resident is in the same position, he now has a major incentive to default on his own mortgage to get the better deal. It just makes business sense.

The logic is iron clad. You are underwater on your mortgage. The next door neighbor stopped paying his for 6 months and got a sweet heart deal out of it. You are paying for your neighbor's bad decision through higher taxes and a weaker dollar (eventually; current dollar rally is fake) and you are paying your mortgage as well. It just makes business sense to take 6 months off, save the cash and wait for the new deal to come in.

McCain's proposal is an open invitation to default on a mortgage. Besides being totally unfair (we are over that as well) the idea itself would cause a cascade of deadbeats looking for a better deal. While I am a fan of do overs, this one would be expensive beyond all reckoning.

That McCain thought it was a good idea is bad. That his advisers thought putting this out there was smart is bad. That as a country we are at a spot where burdening the whole to save a few is the most wanted solution makes me very uneasy.

Wake up folks. This is dangerous stuff being thrown around that will impede your progress for years to come. While McCain's idea is ridiculous, I have yet to hear anything from Mr. Obama that resembles a coherent plan. In the film "Brewster's Millions" the great Richard Pryor ran for Mayor of New York in an effort to spend a ton of money. He wanted people to vote for "None of the Above" instead of any of the candidates. A brilliant idea for this election as there is simply no choice worth selecting.

Try to remember as we hurtle towards socialism on a grand scale:
Socialism breeds decay and lack of effort. With no incentive to try, as there is no way to get anywhere, people just give up and accept whatever they are given. While this may seem nice in a pinch, it sucks hardcore as a national goal. If you think people do not care now and that most folks are lacking in drive, just you wait.

Have a good night.