McCain's resurgence policy beats Obamanomics

Economic policy will make or break this election…and the next presidency.

It’s clear that our next president will have to do some heavy lifting to pull the U.S. economy back on its feet, and the steps to recovery have been hotly contested. During last night’s presidential debate, the candidates addressed our struggling economy and their plans for remedy.

Obama spewed more standard democratic slogans, insisting that tax breaks for middle-class Americans will help us avoid economic ruin.

Really? How will a tax cut help someone who is already upside down on their mortgage and in immediate danger of losing their home? Are we talking like tens of thousands of dollars in tax cuts for every person? Can we get that money like next month? That’s how fast Americans are foreclosing. For some, it has already happened. How will a tax cut help those who have already lost their homes?

One of the problems snowballing this crisis is that many homeowners are upside-down on their mortgages (sometimes called “negative equity”). Even if they could sell their house at fair market value they’d still owe more money than they’d receive on the sale.

McCain highlighted a plan to help families restructure mortgages. His plan isn’t perfect (and I’m still not a fan of his vote on the $700 billion “rescue” plan). I don’t think forgiving debts, which this plan would in some cases, is the best solution. It’s giving a man a fish versus teaching him to fish. Struggling homeowners would be better served by a plan that allows them to opt for interest-only payments for a few years, at least until they have some positive equity in their homes again. That would provide much needed relief without giving the false impression that we can continue to dig ourselves into financial holes and expect the federal government to pull us out.

I would also alter McCain’s plan to include homeowners with zero down payment mortgages, which his current plan expressly excludes. Was it stupid to buy a house without any down payment at all? Yes. If you can’t afford a down payment you should be renting. But this stipulation would exclude from McCain’s resurgence plan a significant number of families who urgently need help restructuring their mortgages. Without help they will surely lose their homes, regardless of how swiftly Wall Street is recovering.


P.S. So good to see Rach writing again. I missed your acerbic wit and pointed observations.

Why the bailout is bad for business

Bailing out failing companies without restoring investor confidence is useless. Deteriorating financial institutions hurt our economy, but the resulting decline in investor confidence is the real crisis.

It’s important to remember that these businesses failed for good reasons. They took on reckless investments, sometimes at the urging of the federal government who now wants to hand over $700 billion to revive our tanking economy.

If officials really want to stop the bleeding they’ll halt earmark-laden legislation and start working with financial markets, encouraging more deals like the WaMu and Wachovia buyouts. In the days following the crash, the federal government has overestimated it’s own political clout. Consumers won’t invest their hard-earned dollars simply because you tell them it’s safe. At this point, confidence would be better restored with corporate solutions, especially in the U.S. where faith in our government is dwindling.

Over the past week, countless economists and journalists have compared this crisis to the events leading up to the Great Depression. It’s hard to deny the parallels: the three greatest tragedies that tanked our financial system during the 1930s were the credit crisis, irresponsible lending on the part of financial institutions, and the government’s failure to provide aid to struggling families. Our current situation paints a distressingly similar picture. It makes a government rescue seem necessary, if not inevitable.

But don’t underestimate the market. Overzealous intervention could do more harm than good. The market weathers peaks and valleys with remarkable resilience and it will eventually self-correct. We may not all be better off when that happens: homeowners who bit off more mortgage than they could chew could still lose their homes, and fiscally irresponsible companies could still be out of business. But allowing this process of economic natural selection is the best solution.

If we must have government involvement let it be limited to helping the families most affected by this crisis. Let’s come up with payment plans to help middle-class Americans keep their homes.

With the Dow still hovering above 10,000, we’ve yet to see the bottom of this slump. But a $700 billion lifeline won’t stop the recession in its tracks.

You can take that to the bank.