Kevin Drum

Bailing out Homeowners

| Wed Oct. 8, 2008 12:50 PM EDT

BAILING OUT HOMEOWNERS....Last night, when John McCain mentioned his plan to directly rescue homeowners facing foreclosure, I wasn't paying attention. To be honest, I'm so hardwired to assume that presidential debates are just rehashes of old talking points that I thought McCain was merely tossing off another platitude — we need to protect the taxpayer, we must help distressed homeowners, we will focus on job creation, blah blah blah. I didn't realize he was serious about the homeowner part, complete with an actual new policy proposal and everything.

And apparently I wasn't the only one. Marc Ambinder reports that "The proposal certainly seemed to have caught even McCain's surrogates off guard; they had not been prepped to answer questions about it. The media didn't quite know what to think, and there hasn't been too much attention paid to this yet, even though it's a bold and expensive idea." So I don't feel quite so bad about missing this.

Of course, the devil is in the details in a plan like this. Who do you rescue? Everyone who's underwater? Everyone with a subprime loan? Everyone in foreclosure? Only people who are victims of fraud? How do you figure out who that is? And what does "rescue" mean? Restructuring their loan? Putting a halt to all repos? How do you prevent people from gaming the system? Will it prevent house prices from settling back to their natural level? Etc. etc.

Technically, most of those details can probably be worked out. But what interests me is that there's another potential hurdle: the public might not actually buy it. The only comment I did make in real time about McCain's proposal was an observation that CNN's focus group "against expectations, really didn't like McCain's idea of bailing out homeowners directly." And the reason for that appears to be straightforward: cautious, responsible homeowners who took out cautious, responsible loans and bought cautious, responsible houses, are not necessarily thrilled at the idea of their idiot profligate neighbors getting a federal bailout for the idiot profligate loans they took out on their idiot profligate house/remodel/HELOCs. After all, the bulk of the people who need help are not old friends who bought their houses 20 years ago, it's brand new neighbors who swept into the neighborhood in 2006 on a rising tide of debt and shiny new cars. Sympathy for these folks may not be nearly as high as many of us suppose.

Now, this may seem perverse in some ways. Obviously not everyone in foreclosure acted recklessly. And in any case, is bailing out a neighbor who acted recklessly really any worse than bailing out a bunch of Wall Street fat cats who acted recklessly? Maybe not, but the public is none too thrilled about bailing out the fat cats either. And let's face it: your next door neighbor is.....next door. If he seems like an undeserving sort, bailing him out might cause your blood pressure to go up way more than bailing out a bunch of distant banks. For better or worse, that's just human nature. Especially if your next door neighbor has a dog that drives you nuts by barking all night. Just take a look at the now-famous Irvine Housing Blog for a daily helping of exactly this schadenfreude-filled attitude.

So, technical issues aside, it's quite possible that this is not the political winner McCain thinks it is. I note that Obama hasn't really picked up on it, even though his speech today in Indianapolis was a perfect opportunity to do so. I wonder if he understands something the rest of us don't?

UPDATE: Brad DeLong points out that on a technical basis, the McCain plan sucks very, very badly because it directly bails out the banks that made all the bad loans. Details here.

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Real Conservatism

| Wed Oct. 8, 2008 11:58 AM EDT

REAL CONSERVATISM....NRO's Andy McCarthy is seriously pissed that John McCain didn't turn last night's debate into a slugfest over Obama's terrorist/socialist/UN loving ways. Ross Douthat comments:

You know, part of me actually wishes that John McCain had started talking about Bill Ayers, the Annenberg Challenge, Rashid Khalidi, and how the Global Poverty Act will line the pockets of Hugo Chavez. (Maybe in his answer to one of the questions about the economy — why not?) Because that way we wouldn't have to hear — as we will hear, from McCarthy and others, for months and years to come — that the biggest problem with the McCain campaign was that it just wasn't willing to really takes the gloves off and call Barack Obama the terrorist sympathizer that he is.

Actually, it's worse than that. If McCain loses, as he's almost certain to, we're going to see two reactions. First, Steve Schmidt wasn't nasty enough. In the future, Republicans need to return to their Lee Atwater roots and really teach Americans what liberal treachery is all about. Second, we told you a RINO couldn't win. The conservative base will be convinced for years that the big problem with McCain was that he was trying to be a pale shadow of liberal Democrats. (Sarah Palin will be conveniently forgotten, or else finally seen for the tokenism she really is.) The nation still hungers for genuine conservatism, they'll say, and they knew McCain was a phony all along. If only the party had nominated a Romney or a Huckabee the public would have swarmed to their cause.

This is delusional, but it's probably good news for Democrats. It means the GOP is going to be riven by factional warfare for years, with moderates unable to get a purchase on the party apparatus because of the McCain albatross hanging around their necks. Eventually, like Britain's Labor Party in the 80s, they'll find their Tony Blair, but in the meantime they're likely to double down on the most strident possible social conservatism, convinced that the heartland will respond if only they regain the true faith. Ronald Reagan, who was more pragmatic about these things than any of them ever give him credit for, will be rolling in his grave. And Democrats, at least for a while, will go from strength to strength.

Feedback Pedantry

| Wed Oct. 8, 2008 11:34 AM EDT

FEEDBACK PEDANTRY....Vikas Bajaj of the New York Times explains the financial crisis:

The technical term for it is "negative feedback loop." The rest of us just call it a panic.

I know that a lot of people use this term during a crash because "negative" is the same thing as "down," but I don't think this is right. It's a positive feedback loop he's talking about, where every action in a particular direction feeds back to cause even greater action in the same direction. In a bubble, it means that the market going up causes buyers to get ever more excited, causing the market to go up even more. In a panic, it means that the market going down causes sellers to get ever more hysterical, causing the market to go down even more. It's bad news in both directions, and it's a positive feedback loop whether that direction is up or down.

Unless, of course, this is some kind of weird term of art in the finance biz. Which would probably serve me right. Anyone know?

Debate Liveblogging - 10.07.2008

| Tue Oct. 7, 2008 8:59 PM EDT

DEBATE LIVEBLOGGING....Sure, it's going to be a townhall format, but is it a small town format? Because we all know that small town values are where it's at these days. Gentlemen, start your engines.

Wrapup – There was more tit-for-tat spatting this time than in the previous debate, but not really anything substantively new. They both had pretty much the same talking points as they did in Oxford, and neither one was especially sharp tonight.

Obama was not at his best, but his answers were mostly fairly clear and straightforward. He did OK. McCain struggled at first, then picked up a bit later, but overall seemed sort of testy and off his feed. And what was with his "that one" reference to Obama? That's not presidential, my friends.

On specific topics: McCain did poorly on energy; Obama did well. McCain did OK on the financial crisis; Obama did much better. McCain blew the "priorities" question; Obama handled it nicely and gets points for not completely accepting Tom Brokaw's framing. McCain did OK on entitlements; so did Obama. Healthcare was sort of a botch for both guys. Overall, a modest but definite victory for Obama.

UPDATE: The CNN insta-poll says Obama won 54%-30%. I'm not surprised Obama won, but I'm a little surprised he won so strongly. I suspect this has something to do with the increasing comfort level with Obama as the debates progress, and also with the steadiness he's demonstrated during the financial crisis. In any case, it's very, very bad news for McCain. Once the comfort level with Obama increases to this level, McCain is doomed.

UPDATE 2: CBS insta-poll of uncommitted voters says Obama won 39%-27%.

10:33 – McCain: "What I don't know is what the unexpected will be." Yogi Berra would be proud.

10:31 – "What don't you know and how will you learn it?" This is just a variation on the old "What's your greatest weakness?" chestnut. Jeers to Brokaw for asking it.

10:26 – Oh please, not preconditions again. Not the League of Democracies. Please. It's like a Kabuki play.

10:24 – OK, we finally have an issue that men care about more than women: Russian energy. Who knew? UPDATE: Iranian nukes too!

10:16 – By the way, didn't McCain sound kind of whiny a couple of minutes ago with his "If Obama gets more time then I want more time too" schtick?

10:15 – McCain once again says he knows how to get Osama but he's not going to tip his hand about how to do it. Sheesh.

10:11 – McCain is really struggling to make Obama sound like a warmonger for wanting to kill Osama if we find him in Pakistan. It's just too much of a stretch for him.

10:10 – Is there anything that men react to more strongly than women? Come on guys, get in touch with your feelings!

10:07 – Once again, McCain is noticeably more comfortable with national security issues than with domestic issues. In the first 40 minutes of the debate McCain tripped over his own words frequently and found himself struggling for words and ideas. Now that we're onto foreign policy, he's far more fluent.

10:05 – Obama is oddly tongue-tied on the subject of humanitarian interventions.

10:02 – McCain and Obama agree that America is the greatest nation on earth. Whew. I'm glad we got that cleared up.

9:58 – Obama: "It's important to crack down on insurance companies that are cheating you." The focus group has gone off the charts. Even the men (who don't react nearly as strong as women) reacted fairly strongly.

9:54 – McCain's "math" on healthcare is a total ramble. I wonder how many people have any idea what he's talking about?

9:52 – When the candidates attack their opponent's plan (as Obama is doing right now on healthcare), the focus group doesn't like it. But is that because they don't like attacks, or is it because they're agreeing that the stuff being attacked really is bad?

9:46 – Obama wants wind and solar. Much better! Everybody likes wind and solar.

9:44 – McCain gets a total softball on his environmental plans. But he's blowing it! Nuclear power is safe! We can reprocess all the toxic waste! Even if that's true, it's a bad answer. Then he follows up with a bit of incoherent rambling.

9:41 – McCain: "Social Security isn't that tough." Well, that's true enough. But on Medicare, McCain thinks the answer is a commission. Hmmm.

9:39 – Obama is getting pretty wonky about his tax plans. But the focus group loves it!

9:33 – McCain didn't seem anxious to mention his gigantic corporate tax cut.

9:28 – Obama hasn't said "John is right" yet. Is this deliberate?

9:27 – Obama says energy is priority #1, healthcare is #2, and education is #3. He refused to take Brokaw's bait and demagogue Social Security. Good for him.

9:24 – McCain wants "all of the above." Literally. He's in serious ramble mode on what his highest priority will be as president.

9:23 – No bear DNA yet, but McCain has a new one: Obama voted for "an overhead projector for a planetarium in Chicago, Illinois." Take that!

9:21 – Isn't Bill Ayers really the source of all our economic woes? Why hasn't McCain pointed that out yet?

9:20 – Obama keeps talking about George Bush and how he mishandled the economy. Why is he unwilling to say the words "Republican Party" instead?

9:18 – American workers are the best exporters and the best importers in the world? What is McCain talking about?

9:17 – Neither candidate wants to admit the obvious, namely that the economy is going to get worse before it gets better. I guess I don't blame them.

9:15 – Obama, on the other hand, actually did a pretty good job of explaining how TARP might help ordinary workers. But now it's back to tit-for-tat against McCain.

9:12 – Oliver wants to know how the bailout bill is going to help people like him. McCain isn't even pretending to answer the question. Instead he's just attacking Obama and his "cronies" who supported Fannie Mae.

9:09 – Is McCain really serious about Meg Whitman as Secretary of the Treasury?

9:07 – I have no idea whether these "dial groups" that CNN monitors during the debate have any validity at all, but I'm fascinated by them regardless. And the dial group, against expectations, really didn't like McCain's idea of bailing out homeowners directly.

9:05 – Yes! Obama wants to fire all those AIG execs who took that $400,000 junket. The focus group goes wild!

9:01 – Wolf says there will be no rambling or filibustering tonight. Why? Because there's a clock. That really doesn't seem to have stopped rambling or filibustering before, but I guess there's a first time for everything.

8:59 – Everybody at CNN thinks that everyone else at CNN is absolutely right about everything they've just said.

The British Bailout

| Tue Oct. 7, 2008 7:27 PM EDT

THE BRITISH BAILOUT....From the Guardian:

Gordon Brown will announce plans today to use up to £50bn of taxpayers' money to take major stakes in the high street banks in a last-ditch attempt to restore confidence in the financial system.

Adjusted for the size of our respective economies, this is about the equivalent of $500 billion. In other words, nearly as big as the Paulson bailout. In other words, big.

However, they're using their money to recapitalize banks, not to buy up troubled assets. Paul Krugman approves.

Debate Preview

| Tue Oct. 7, 2008 4:25 PM EDT

DEBATE PREVIEW....Karen Tumulty notes that 9 out of 10 people are now dissatisfied with the way things are going in the United States:

With the nation in that frame of mind, it's hard to believe that talking about Obama's associations with a figure from the 1960s is going to gain McCain much ground. Nor will talking about earmarks, or recycling his stump speech jokes about how the federal government is studying the DNA of bears. These items aren't even a rounding error in the huge federal budget, and sound even smaller in the wake of last week's $700-billion bailout package. And all this is even before most Americans have taken a look at the quarterly statements they will be receiving in coming days that show just how badly their 401(k)s and other investments have been hit.

Two notes. First, what's the deal with the 9% of the country that apparently thinks we're doing OK? Did they not understand the question? Second, as dumb as it is, my guess is that McCain will talk about Ayers and Jeremiah Wright and bear DNA regardless. It's possible that there was never any winning strategy for McCain in the first place, but the strategy he ended up with has nonetheless been almost astonishingly bad. It's like he just put the last few winning Republican campaigns in a blender and decided to repeat them. Neither he nor Steve Schmidt seem to understand that the Republican base just isn't what it used to be.

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Debate Bingo....This Time For Real!

| Tue Oct. 7, 2008 12:45 PM EDT

DEBATE BINGO....THIS TIME FOR REAL!....Speaking of tonight's debate, our debate bingo game is back and it's better than ever. Thanks to enterprising reader Jason S., you can now print different versions of the card and play actual bingo with your friends tonight. Just click the link to go to our fundraising page and then click on the bingo card. Once you're there, click the Mother Jones logo at the top of the card and all the squares will randomly reset. You can print as many different cards as you like.

Now that's customer service! I'll be liveblogging, of course, so come on by and join us in comments. And as long as you're already at our fundraising page, maybe you can throw a few dollars our way too. It keeps both the magazine and the blogs going and helps keep progressive journalism alive. Pretty good deal, eh?

Debate Format

| Tue Oct. 7, 2008 12:19 PM EDT

DEBATE FORMAT....Taegan Goddard summarizes the rules for tonight's "town hall" debate:

The questions will "be culled from a group of 100 to 150 uncommitted likely voters in the audience and another one-third to come via the Internet."...."An audience member will not be allowed to switch questions. Under the deal, the moderator may not ask followups or make comments. The person who asks the question will not be allowed a follow-up either, and his or her microphone will be turned off after the question is read. A camera shot will only be shown of the person asking — not reacting."....McCain and Obama are not supposed to ask each other direct questions.

This is ridiculous. Why bother with a human audience or moderator at all? You might as well just select the questions, project them on a screen via PowerPoint, and televise the results. Wire the candidates up to received increasingly intense electrical shocks if they exceed their time limits and you'd be all done. Anybody got a problem with that?

The Politics of Esthetics

| Tue Oct. 7, 2008 11:26 AM EDT

THE POLITICS OF ESTHETICS....Ezra Klein is agog at Sarah Palin's campaign rhetoric:

I can't remember George W. Bush engaging the culture war with anything even approaching this ferocity in 2004.

McCain and Palin are running on fumes. There's just nothing left for them to talk about aside from unpatriotic liberals, sneering urbanites, and how the mainstream media hates them. The politics of esthetics is all they have left.

It has truly been a remarkable campaign. If you put a gun to my head and forced me to choose between John McCain and George Bush as president, I don't know who I'd pick — and that's something that would have been inconceivable as recently as a year ago. I wonder if McCain has any idea just how thoroughly he's going to exit this campaign with his reputation permanently soiled and his life story in tatters?

Commercial Paper

| Tue Oct. 7, 2008 1:58 AM EDT

COMMERCIAL PAPER....Banks, finance companies, and large corporations routinely finance their ongoing operations by issuing short-term debt known as commercial paper. It's denominated in large amounts (typically a million dollars or more), it's unsecured, it's low cost, it matures quickly (typically in 30 days or so), and it can be issued easily because it doesn't have to be registered with the SEC. Without access to commercial paper, large modern corporations would seize up and die.

Which, unfortunately, is what's happening right now. The commercial paper market is essentially frozen, and as notes mature and need to be rolled over, companies are finding it impossible to get routine financing. (This is how "Wall Street problems" turn into "Main Street problems.") So today, the Fed announced plans to step in:

As pressure built in the credit markets and stocks spiraled lower around the world on Monday, the Federal Reserve was considering a radical new plan to jump-start the engine of the financial system.

....The Fed plan is intended to renew the flow of credit on which the economy depends. Under its plan, the central bank would buy unsecured commercial paper, essentially short-term i.o.u.'s issued by banks, businesses and municipalities.

And there's more:

On Monday, the Fed announced that it would once again redouble one of its key emergency lending programs, increasing the size of its Term Auction Facility to $600 billion, from $300 billion. On top of that, the central bank plans to provide an additional $300 billion to banks to meet their end-of-the-year cash needs.

To pay for its burgeoning responsibilities, the Fed has no choice but to keep printing more money. To prevent that flood of new money from reducing the central bank's overnight interest rate to zero, the Fed also announced on Monday that it would start paying interest on the excess reserves that banks keep on deposit at the Fed.

Paying interest on reserves allows the central bank to set a floor on interest rates and retain at least some control over monetary policy. In its announcement on Monday, the Fed said it would pay an interest rate of 1.25 percent — three-quarters of a point below its target of 2 percent for the overnight Federal funds rate.

That's a lot of activity for one day, no? Normally, I'd say that stepping into the commercial paper market is a pretty stunning move for the Fed, which is decidedly not in the business of financing corporate operations. But after the events of the past year it seems almost anticlimactic. Before long you'll be getting your auto loans directly from the Fed.

Just to put this in perspective, though, it might actually be a bigger deal than the bailout bill we just spent the past two weeks going berserk over. But it will happen with hardly a peep regardless. I don't think anybody's in the mood to peep right now.

And one other note: remember that $7 billion that California governor Arnold Schwarzenegger wanted to borrow from the Fed because the credit markets were frozen? That was for the purchase of Revenue Anticipation Notes, which are routinely used to finance ongoing operations while the state is waiting for tax revenue to arrive in the spring. Unless I'm wrong (and I might be), this is basically a form of commercial paper, which means that California might get its wish. Instead of issuing the RANs privately and paying high rates (if there are any buyers at all), California may be able to make use of the new Fed facility instead. Frankly, I'm not sure we deserve it, but who said life was fair?