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?

Joe the Plumber and Progressive Marginal Taxes

The biggest sense I got about Joe the Plumber last night is that he has a basic misunderstanding of the progressive marginal tax system. If Joe moves a buck over 250k, he would probably pay about a nickel more in taxes under Obama's plan compared with McCain's. That's a fact. I've explained it before. It's fine to have civil disagreement over the philosophy of the sorts of changes in the tax code that the candidates would bring to the table, but the Republicans have been distorting the facts about the tax code since Reagan, and the middle class needs to stop drinking their Kool-Aid.

Just Read It

It may be the case that there has been some misleading information on both sides about policy. If there has then Mr. McCain needs to be more specific about what exactly he believes is being misrepresented rather than just throwing vague allegations out there. More importantly, Mr. Obama has been specific in addressing exactly which allegations by Mr. McCain have been misleading, and why, perhaps simply because he understands his own proposal and the issues in a broader sense better. Have a look-see.

Wednesday, October 15, 2008

Austan Goolsbee mops the floor with Doug Holz-Eakin's Carcass

Listen here. I love the part with a bout 5-6 minutes left where DH-E says something about paying face value for assets, and Austan says NO! That would be obscene! It would give the biggest subsidy to those who were the most irresponsible!

Money and Capital

I really wish the talking-head TV "economists would stop saying banks don't have enough "capital." They have plenty of "capital," it's just that their "capital" assets are tied up in loans that are increasingly non-performing. They just don't have enough of that type of capital which is most liquid, i.e. cash flow or MONEY. No fancy math, just basic terminology that makes sense and is correct.