During the third and final presidential debate last night, Sen. John McCain (R-AZ) was asked about his plans for the economy. In response, McCain outlined his Homeownership Resurgence Plan, which he said will help “put the homeowners first.” McCain also addressed what he called “the criticism” of his plan:
Now, I know the criticism of this. ‘Well, what about the citizen that stayed in their homes? That paid their mortgage payments?’ It doesn’t help that person in their home if the next door neighbor’s house is abandoned.
However, this is not the main criticism of McCain’s plan. The main criticism is that the plan rewards bankers who made bad loans by directing the federal government to buy bad mortgages at their original market value, instead of at their current depreciated value.
Testifying today during a Senate Banking and Housing Committee hearing on “The Genesis of the Current Economic Crisis,” Cuyahoga County Treasurer Jim Rokakis explained that “if you buy them at face value…you’re guaranteeing yourself, I believe, tens of billions of dollars of losses.” Watch it:
As Matthew Yglesias noted at the time, “instead of having the lenders take a haircut in order to avoid mass foreclosures, McCain wants the taxpayers to bear all the costs of doing so.” “The plan rewards those who took on the risk — banks that made loans, and homeowners that bit off more than they could chew — at the entire expense of taxpayers,” wrote Morgan Housel at The Motley Fool. “McCain’s proposal comes about as close to a get-out-of-jail-free card as it gets.”
McCain initially included in the plan that he would force lenders to “recognize the loss that they’ve already suffered,” but he flipped — overnight — to place the bill back on the taxpayers. This is the criticism that McCain needs to address.