McCain the Honest Thief

Any American with assets to his name, or who hopes someday to get some, has suffered a few very anxious weeks as the markets twist slowly in the wind.  Anyone who has been following the financial news is not enjoying a great deal of hope for the future.

The much vaunted bailout plan which was passed last week was greeted by yet another stock market crash.  What voters want to hear is a reassuring plan; to have a sense that someone has some idea how to get us all out of the financial fix our government has caused, but nobody has a coherent plan.

This Tuesday's debate provided an opportunity for both Barack Obama and John McCain to play the role of President; to reassure the American people; to chart a course to calmer seas; in short, each man had a chance to convince us that he had a plan and that he knew what he was doing.

But after the longest campaign in American history, it was hard to imagine what they could say that would be new and surprising.  Obama would propose more regulation, more taxes, and more spending; McCain would suggest an end to earmarks and government waste and maybe even the occasional tax cut.  Could even the famous Maverick pull a rabbit out of a hat this far into the process?

Well, John McCain reached in his hat, all right, and he pulled out something fuzzy, but it's no rabbit.  This critter is certainly no solution to either our financial woes or his electoral fortunes.

To save our economy, he says, John McCain proposes to steal hundreds of thousands of dollars from individual, hard-working, thrifty, tax-paying Americans, and use it to reward the foolish and the fraudulent.

This is no idle charge, no partisan assault.  Let's hear what he had to say during the debate:

You know that home values of retirees continues to decline and people are no longer able to afford their mortgage payments. As president of the United States, Alan, 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 be able to make those -- be able to make those payments and stay in their homes.  Is it expensive? Yes. But we all know, my friends, until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing our economy. And we've got to give some trust and confidence back to America.  [emphasis added]

Now, he's not wholly wrong here.  He's right that we aren't going to have a full recovery until home values stabilize, and he's obviously right that we need our financial system to be changed so that we can once more have trust and confidence in the value of the money we earn and in the value of our savings.

Unfortunately, what Sen. McCain proposes to do is precisely what caused this problem in the first place.  In fact, in economic terms, it's precisely what the Japanese did in the 1990s when their property market crashed.  What their government did resulted in their enjoying no economic growth for one solid decade.

Financial disasters aren't new.  We've had financial bubbles for hundreds of years.  We've seen enough of them and documented enough about them to know that when a bubble pops, positively the last thing you want to do is to attempt to keep the inflated prices up.

No, you are far better off to let prices adjust as quickly as possible, getting the pain over with fast, so recovery can begin.

By buying up mortgages and renegotiating them, he's giving a gift of hundreds of thousands of dollars to each one of the recipients.

No doubt some of these folks are in financial problems through no fault of their own - a job loss, a severe health problem, or some other unforeseeable disaster.  But as we've learned over the last few months, the vast majority of the people who cannot make their mortgage payments are people who could never have afforded to make them in the first place - hence we speak of "liar loans" and NINJA loans requiring "no income, no job, no assets."

The banks unwisely made sub-prime loans, in far too large amounts, to people who never had any hope of being able to pay them back.  Was this the fault of the banks?  Yes, it was; and it was equally the fault of the government officials who urged the banks to make the loans, and it was equally the fault of the people who chose to accept the loans.  What sort of a person borrows money with no idea of how to repay?  Not an honest one, that's for sure.

To stabilize our economy, home prices must finish their natural fall; people who cannot afford the homes they are in need to leave them and return to renting; then, wiser savers will purchase the homes once they reach an affordable level and the slide will stop.  With this action, McCain would artificially prop up housing prices.

This will not lead to stable home values, far from it - for everyone would know that as soon as the Treasury stopped buying up bad loans, prices would continue their interrupted fall and we'd be back where we were before only worse off.  Who is going to buy any house under those circumstances?  Who would want to lend money under those conditions?  Only the government, certainly not private industry.

That's just what happened in Japan.  The Japanese government propped up failing companies which ought to have closed down.  Of course, everybody knew these companies were in trouble, so no normal bank would make loans to them.  With the government handing out loans to all in need, however, there wasn't much business for banks to do.

The assets, which should have been allowed to drop to their natural, more affordable price, weren't allowed to.  There was nothing that a sensible person would want to buy, and there was no money to lend to sound businesses because all the money had been spent saving sour loans.

As the Japanese have more than amply demonstrated, having the government waste our money trying to keep prices artificially high is not a recipe for a sound economy.  John McCain wants to do the same thing here.

The plan rewards those who were the most unwise and the most dishonest by sending the bill to all taxpayers, while harming the economy and impeding the recovery.  But that is not the worst of it.

By not allowing house prices to drop to their natural level, John McCain is stealing hundreds of thousands from responsible, hard-working American families who resisted the temptation to purchase a house they could not afford, and instead have been saving while renting - families, in fact, like me.

For I, myself, do not own a home; I rent.  That housing prices were in an unsustainable bubble was obvious some years ago; I decided that prices had to fall, so it would be unwise to take on a huge loan for an asset that would surely drop in value.

This prediction proved to be accurate, of course, and I've been watching the plummeting prices with the opposite reaction from most folks.  I figure that prices still have at least another 20% to fall in my area, so I'd planned on waiting until that took place, then buying something nice that I could afford.

Thanks to John McCain's plan, that wouldn't be possible.  If his plan sees the light of day, I can kiss home ownership goodbye for many years, having unwisely decided on prudence instead of depending on Uncle Sam to bail me out of potential trouble.

If you're a hard-working and responsible person, you expect to be penalized for your thrift and industry by Democrats who believe in redistribution.  You don't expect to be robbed by a Republican.

If we're bound and determined to have socialism in this country, let's have it be done by Democrats.  They can do the deed, and they can take the responsibility.

In December 2007, John McCain said:

The issue of economics is not something I've understood as well as I should.

Truer words were never spoken; he's an honest man, but on this issue, he's no less a thief for meaning well.  That rabbit in his hat turned out to be a skunk; we may as well start practicing saying "President Barack Hussein Obama."