Thursday, October 09, 2008

Will wonders never cease?

The pundits and talking heads pretty much agree that there was nothing "game changing" about the second Presidential debate. I'm not so sure about that.

If you've been reading this blog, you'll remember that when McCain suspended his campaign, I offered a solution to the banking crisis. What I said was that we should make every possible effort to renegotiate the loans rather than foreclose. These are bad risks, but they're not losses... not yet, anyway, unless we foreclose and take the loss. I mentioned then,
Of course, my plan would never make it to the table because it actually makes sense and it would actually work. Let's see what sort of "second best" solution they come up with.
Well, it looks like something very much like my plan has indeed been offered... by John McCain. It is, in fact, the only memorable thing about the second debate. While Obama was fumbling around with his head in the past trying to assign blame to anything but Fannie Mae and Freddie Mac (where it properly belongs), McCain has moved past the "blame game" to suggest a solution: that the Federal government should buy these loans to renegotiate them, either to sell them off or hold them until paid.

This idea differs from mine in that the government would buy the loans outright rather than direct lenders to renegotiate them. I happen to like my version better because it places no burden on the taxpayers (who after all are not responsible for this mess); however, it's quite likely that my version will have some negative impact on the economy in the near-term due to the lessened ability of these lenders to make additional loans (for lack of capital). I happen to think that's OK; that other lenders will appear, and that companies you haven't heard of yet, but which are in better shape financially, will step up and fill the gap. Again, that's OK, because those companies currently on top really don't deserve to stay there. Adversity is the mother of opportunity. And if necessity is the mother of invention, opportunity is its father. I do not guess or hope that the financial void will be filled; I know it. It is as inevitable as the change of seasons.

The McCain plan would keep the top players where they are and would put an onus on the taxpayer. This would provide greater short-term stability in the market. And the onus is temporary, as the money will be recouped; probably most of it within ten years. I don't much like the idea of privatizing most of this industry, but it would actually work, and is indeed "second best" to the plan I would prefer. Renegotiating the loans and keeping those homeowners in their houses are the most important aspects of any workable solution. The rest of it is negotiable, and I think this is a good compromise.

I expect to hear a lot of complaints from Libertarians and the far Right as well as from Democrats who are pissed because they didn't think of it first.

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