Repartay

As I noted last night, John McCain used the debate to announce the “McCain Resurgence Plan” which would seek to spend $300 billion to buy troubled mortgages at full price and renegotiating the mortgages to reflect non-bubble value (read: less than the government would pay). Marc Ambinder describes the plan:

On a conference call with reporters, McCain policy chief Douglas Holtz-Eakin spelled out how McCain would pay for his plan for the government to buy troubled mortgages and replace when with more favorable fixed-rate mortgages at minimal direct cost to the homeowners. The government could use some of the $700 billion authorized for the bailout and tap other accounts, although the campaign estimates that, owing to negative equity — the government can’t magically turn bad mortgages into good ones without taking a hit — would be $300 billion.  The McCain team hopes that by buying mortgages directly, the government wouldn’t have to buy as many distressed assets from big banks, thus reducing the net cost.

Now, aside from the fact that this capability is already structured into the actual bailout, what about the merits of the plan? My qualms with this idea are largely from a fairness standpoint: how do we decide who gets help and(though this is a policy argument as well) how does the taxpayer stand to be compensated? Apparently, it’s bad from a nuts-and-bolts aspect as well.

Brad DeLong, legitimate economist, points out that throwing $300 billion of taxpayer dollars at troubled mortgages would really result mostly in overpaying the mortgage lenders who had originated the toxic loans in the first place. What’s more, the money wouldn’t go nearly as far as it might under options available in the current bailout and the investment by taxpayers would be all but guaranteed to lose money.

But again, this plan was designed primarily to make John McCain seem serious minded about the economy. Unfortunately, his surrogates didn’t get the memo.