Thursday, October 16, 2008

McCains mortgage buyout plan: Bad policy, bad politics.

Delinquency Rates for Loans, all banks (source: Federal Reserve):

.........Real...Res...Comm.......Credit............................
........Estate..R.E...R.E...Cons..Card..Oth..Leases..C&I...AG...Total
2008 Q2:..4.21..4.33..4.24..3.57..4.90..2.80..1.54..1.67..1.10.. 3.31


Homeownership rate: 68.8

Bank Sector employment and earnings:

...........Employment...hr/wk...$/hr....$/wk....$/year
July 2008:..8,206,000...35.8...20.28...726.02...36,300

Labor force: 134 million

The point is, I got the feeling from Mr. McCain's plan to pay banks face value for mortgage assets and negotiate the principle down with the borrowers was a bad idea. It smacked of a second-best solution (like trade policy intervention), or at least one that would mess up a lot for very little gain.

Turns out, that seems to be the case. Employment in all financial services is about 8% of the workforce. Delinquent loans are at most about 3 percent of all households (less if you consider the fact that not all households who are homeowners have a mortgage). Who wins this way of doing it? 11 million people who didn't make wise decisions. Who loses? the 90% of us who were prudent. Moral hazard anyone?

No comments:

Post a Comment