'Economists For McCain' Trash McCain's New Mortgage Plan
Many of the professional economists who formally endorsed John McCain's economic plan are expressing bewilderment with his most recent proposal to rectify the home mortgage crisis.
In interviews with the Huffington Post, roughly a dozen of McCain's economist supporters said they disagreed with the Senator's recent proposal -- for the government to buy distressed mortgages at face value from banks and renegotiate them with homeowners. Several viewed it as a gimmick, driven mostly by political circumstance. Only one pro-McCain economist spoke up in favor of the plan.
"This is just political gamesmanship," said Robert H. Heidt, a professor at the Indiana University School of Law. "The bill is wildly over-ambitious in trying to rescue home buyers from the downturn in real estate appreciation. It's costs would never end. I will end up voting for McCain but this is ridiculous."
Added George Viksnins, a retired professor of economics at Georgetown University: "Even though I support McCain I think this is an ill-considered program. This was something to get press time and face time, and that is the problem with our political system. This was done as a sound bite and without analysis."
"This is part of the larger plan to reward people who made mistakes. There is nothing in the plan to prevent people from continuing to do dumb things," remarked Don Booth, a professor of economics at Chapman University, who previously signed onto McCain's economic plan. "If we reward bad behavior, we will get more bad behavior."
One economist who backed McCain was more sympathetic to what the Arizona Republican was trying to do -- the argument being that the government, which contributed to the crisis by encouraging home loans to those in no position to afford them, now held responsibility in helping the nation out of the mess.
"I think his idea is a good one to the extent that you have to stabilize the housing market.
I think the intention is the right intention. I think the direction is the right direction," said
Professor C. Thomas Howard of the Reiman School of Finance at the University of Denver. But even Howard was left concerned with the lack of details or underlying principle in McCain's approach. "Are they going too far in trying to save everything?"
Others were simply confused and critical with McCain's proposal to pay full price on these mortgages, arguing it amounted to a taxpayer bailout for those home owners who went beyond their financial means and financial institutions that jumped in on the business of shaky loans.
Michael Connolly, an economics professor at the University of Miami, called the idea "Robin Hood economics."
"It will provide an incentive for people to default [on their loans]," he warned. "And they might get rid of their negative equity and take the subsidy and default on their next loan too."
Houston Stokes, a professor at the University of Illinois at Chicago, said he didn't agree that the government should "pay a face value" due to the moral hazard it created.
"These guys got themselves into a jam and it is now their problem," he said. "We should not overpay. We should buy these mortgages at the lowest price... I don't want to be accused of helping out the Wall Street types."
Stokes was echoed by Delaware University economics professor Burton Abrams, who said that McCain was encouraging "future bad decisions," before noting that "there are no easy solutions here and all have their costs."
The American Enterprise Institute's Glenn Biggs (another McCain economics backer) may have summarized it best: "The issue could be not just moral hazard and unfairness, in the sense that [people think]: how do I get my share of this? And maybe they stop paying on their mortgage. I don't know the plan well enough to know what design features it has. But generally, people want to qualify for a benefit when it exists."
McCain's plan, which has quietly undergone revision in recent days, was first announced during Tuesday night's presidential debate with Barack Obama.
"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 make those -- be able to make those payments and stay in their homes," McCain said, adding: "Is it expensive? Yes."
In the immediate aftermath, as pundits scratched their heads, it was unclear how much the plan would cost, whether the government would pay face value for the devalued mortgages, or even if it was legal. Eventually, the Senator ceded that it would require "new money" beyond the funds included in the recent $700 billion economic rescue package.
In the meantime, the McCain campaign has tried to present the idea as a prudent and fair measure of stabilizing the housing market and ensuring that average Americans don't lose their homes. But even for some of McCain's own endorsers, the political implications behind his most recent proposal seemed all too regrettable and clear.
"I have favored McCain's approach to the economy, since Obama's plans will, of necessity, lead to tax increases and huge spending increases," said Phil Bryson, a professor of economics at Brigham Young University. "I would have expected this kind of mortgage plan to have been proposed by Obama, since it fits well with his general approach to government action. It comes from McCain only because the declining economy has given Obama a surge in the polls and people are willing to accept anything Obama says without question."
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The Huffington Post | Sam Stein & Seth Colter Walls
First Posted: 10-10-08 04:18 PM | Updated: 11-10-08 05:12 AM