I’ve blogged a couple of times in favor of government action to rewrite the terms of mortgages to avoid mass foreclosures, enormous inconvenience for everyone, and a housing slump that winds up overshooting on the downside. Based on what John McCain said last night, it sounded to me like he was proposing the sort of thing CAP’s been pushing for.
Brad DeLong observes that McCain has now refined his position to something much less reasonable. Instead of simply taking action to force a rewrite of mortgages as part of the existing planned bailout of insolvent institutions, McCain wants us to take the additional step of buying mortgages at full face value and then having the government renegotiate the terms. As far as the words you use to describe the plans, this is pretty similar to the CAP idea. But in terms of its actual impact it’s quite different. 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. There’s just no reason to do it this way other than as a favor to the executives and shareholders of firms that made or bought bad loans.