2008 McCain’s Insanely Stupid Bailout Plan
posted by October 8 at 11:40 AMon
During last night’s debate, I was astonished by the stupidity of McCain’s plan for dealing with the mortgage crisis.
Don’t take my word for it. Here’s University of California Berkeley professor J. Bradford DeLong’s take:
* The Paulson Plan: Have the government buy up distressed securities at market value, thus reducing the supply of high-yield debt securities that the private sector must hold. When you reduce the supply of anything you raise its price. Hence the Paulson plan’s $700 billion purchases will push the prices of risky debt securities up, and so companies will then be able to sell their bonds again and so hire more workers, and depression will be averted.
* The Elmendorf Plan: Have the government directly invest in and take an equity stake in troubled banks, thus reassuring their depositors and creditors that they are sound. The banks will then be able to profit by buying up distressed securities—hence raising their prices—and by directly lending to companies that will then be able to hire more workers, and depression will be averted.
The McCain plan is:
* Take $300 billion.
* Pay double current market value to banks that have troubled mortgages on their books, thus:
o Give a present of $100 billion to the bankers who made the loans.
o Acquire and regularize the mortgages of only two-thirds as many homeowners as could have been accomplished if the $300 billion were invested wisely.
There’s a big difference here: Democrats want to prevent depression and support the financial markets by investing taxpayer money in banks with troubled assets. Republicans want to give taxpayers money away to the shareholders and managers of banks with troubled assets.
I would say that this is unbelievable, but I do believe it.