Why McCain's mortgage buyback plan is a disaster + a reasonable sounding alternative

During the Presidential debate Tuesday, John McCain announced a plan which would compel the Treasury Department to purchase troubled home loans. When he announced it I thought that really wasn't anything new -- that's already allowed in the recently passed and signed "bailout" bill. The only difference, I thought, was that the bailout bill made those purchases optional where McCain seemed to indicate they would be mandatory. However, as usual, the devil is in the details. It's what McCain didn't say about his plan that makes it even more of a disaster for taxpayers and another windfall for McCain's major contributors, the Wall Street financial institutions that caused this economic mess.

Under McCain's plan, taxpayer dollars would be used to buy the distressed mortgages from the banks at full, face value. Only then would the principals be discounted for the homeowner. That's right -- McCain's plan steals from taxpayers and gives that money to the financial institutions. Barack Obama's plan, on the other, requires the lender write down the principal and the only thing taxpayers' monies would be used for is as a guarantee that the loan would be paid. We would, in effect, become co-signers. In that way, the lenders, the borrowers and the taxpayers share in the effort to stabilize the homeowning market.

I also read today a proposal from Ambassador Marc Ginsberg who recommends the equivalent of a "New Deal" plan for current and prospective homeowners, much of which made a lot of sense to me. Ambassador Ginsberg recommends Obama enact a version of his economic stimulus package once he becomes President, assuming (probably correctly) that McCain the Deregulator is not going to be interested in that much government action to help middle class taxpayers purchase or stay in their homes. I especially liked his recommendation for a "government-guaranty fixed rate mortgage program offered through banks that would set a federally-mandated interest rate ceiling of 5.5 percent on 30 year fixed rate conforming mortgages," incentives to banks for "converting conforming adjustable rate mortgages to fixed rate mortgages" and his call for a "payment holiday" of 90 days to enable borrowers to regain their financial footing. Check it out.