The Observation Deck

Mortgage backed securities are like people making bets on the people making the bet. Interestingly, some student loans are also packaged up into securities. Same with some credit card debt.

Danielle Masters wrote:So how do the republicans feel about what John McCain said tonight about buying bad mortgages and renegotiating the interest rates and prices?

I think it is a good idea, but that sure sounds like big government. So do the McCain supporters think this is a good idea?

I’m not a registered Republican (or Dem for that matter). First, what is the definition of a ‘bad’ mortgage? I’m sure banks, mortgage companies and others are scrambling to pack as many questionable loans into the ‘bad’ category as possible before the window closes. Over time, there have always been certain percent of mortgages that go bad. Is the government buying ALL loans deemed ‘bad’ or the amount over the ‘normal’ level?

Second, how much is the government paying for ‘bad’ mortgages. Are they (I should say we, as the taxpayers are bearing the brunt of this mess) paying full price or are they taking far less than 100 cents on the dollar?

Lastly, if even remotely possible, I think the government needs to be choosy about which bad mortgages are bought. If someone makes 100k/year and defaults on their 400k mortgage then the burden shouldn’t be on the taxpayers (it should be on the lender and guy who knowingly bought more that they could afford – yes, some level of higher knowledge and financial judgment is assumed if you’re making 100k/year). However, if there are lower income people who were doing fine until their ARM adjusted up and then find themselves in the hole, that’s where the government should step in and either adjust the rate down to where it was or help the home owner transition back to renting (not everyone is capable of maintaining a home let alone buying one). I rented in Lakewood for 5 years prior to buying a house here. Half a double now rents for around $650/month. Not a bad way to live.

Did anyone notice that McCain couldn't even look at Obama? That's a classic sign of deception.

Charlie

I was thinking, why buy any? Why not just guarantee them? That would make it slow and easy. Same with credit cards. One time guarantee. If you need Fed help, no more cards, ever. Need help with your house, IRS is new financial partner.

But more to the point, and I am sure you know more than I, but, aren't these bundled in blocks, and cannot be broken out?

That is what the media is indicating.

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If we’re talking about bad mortgages, in my opinion there’s not much difference between buying and guaranteeing (i.e. they‘re bad and your paying one way or the other). In the Emergency Economic Stabilization Act of 2008, there are provisions for both. Whether buying or guaranteeing, each has its own downside.

A guarantee is basically insurance against someone losing, in this case it’s the mortgage holder. If you guarantee them, the door is left open for untold future financial obligations when the home owner defaults or the terms are restructured and guess who picks up that tab? The guarantor, a.k.a. the government (we all know how much banks like to nail us with fees – imagine what they’d stick the government with).

If you buy, you have to administer them yourself or pay a third party. The upside is those bad mortgages are super cheap right now because no one wants to buy them. My theory is, if you buy the mortgage at a great discount, then you restructure the terms to decrease the risk of default and then the home owner still ends up defaulting, the loss is less to the tax payer than if the mortgage was at full price (full price here assumes that if the mortgages are guaranteed, the value of the mortgage increases as the holder will be made whole).

I probably don’t know more than you on bundling but what if there is a bundle of mortgages and a few of the mortgages go bad but the rest remain good? I would think the defaulted mortgages get unbundled and dealt with on a case by case basis. I said above, there’s no market for these bad mortgages right now. If the government is the only buyer out there, then they should be able to name their terms and unbundle as they see fit.

As far as credit card debt is concerned, let the credit card companies deal with it…no bailout for them.

Put the mortgages under McCain's plan are going to be bought for face value. So we know right off that we will be losing money on these mortgages.

sorry that first word was *But

I need an edit button

Agree with the edit button.

I don’t know the details of McCain’s plan on this but to me, buying junk at full price when it’s market value is far less doesn’t sound like a wise decision. That’s what bugs me about McCain…in order to have more appeal to moderates, over the last month or so he comes up with these plans counter Dems plans and is so rushed that there’s not much thought in them. Consequently, they get picked apart. Both sides are very good at picking apart the others plans and it seems like they spend most of their time and resources doing just that rather than coming up with a solid plan of their own.

So trying to appeal to the moderates McCain spouts out ideas without thoroughly thinking them through. And then because those ideas won't work he has to change the details that will end up costing the taxpayers a lot more than originally thought. Sure that sounds like someone I want to be president, someone that says things without really knowing what he is saying. And the only reason he said them was because he wanted to please a certain group of people.

It works both ways. Obama campaigned during the primaries on the far left side. Since then he’s moved toward the center to temper his liberal side (most liberal voting record of any US Senator). What kind of president will either candidate be when trying to be something they’re not?

yes Obama is liberal, go figure he is a democrat, but he is hardly the most liberal. http://www.factcheck.org/elections-2008 ... leads.html

The Dow lost about 679 points today.

In 1990 the Dow was only at about 2500. It could have beaten average historical growth and still been barely 5000 today. But it is still above 8000. So technically, we are still ahead.

The prevailing 20th century theory behind free trade was based on the assumption that the "winners" compensate the "losers" in the wake of massive structural change, obsoletion, and dead legacy industries. This is why the big proponents of free trade also advocated progressive income taxes. Nixon started the ball rolling on both increasing trade and lowering progressive income taxes. Reagan and Bush kept at it. Clinton also voted to increase trade, but restored some progressive income taxes.

Greenspan's magic formula was to keep lowering interest rates and relying on our new trade surplus partners to bail us out. they will eventually have to lower interest rates to negative one point five.

Oh…what would we do without Factcheck?

If only there was some kind of ‘fact filter’ in these candidates microphones that would buzz when the whole truth is not said. Or require commercials to be fact checked prior to airing.

If the edit button worked, I’d modify to “most liberal only in 2007, when he was busy campaigning and missed one-third of the votes on which the rating is based.â€

Charlie just for your info:

Obama has missed 303 (46.3%) votes this current session.

McCain has missed 420 (64.1%) votes this current session.

Missing that many votes is unacceptable on both sides. I’m sure things come up but they are paid very well to do a job (not to mention the benefits and perks they all enjoy). I don’t suppose they’d be willing to give back the portion they didn’t earn?