McCain’s big plan for solving the financial crisis is this:
As president of the United States, Alan, I would order the secretary of the treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes — at the diminished value of those homes and let people be able to make those — be able to make those payments and stay in their homes.
So let’s not raise anybody’s taxes, my friends, and make it be very clear to you I am not in favor of tax cuts for the wealthy. I am in favor of leaving the tax rates alone and reducing the tax burden on middle-income Americans by doubling your tax exemption for every child from $3,500 to $7,000.
So, here’s a good question. Where does McCain get the money to buy the mortgages? People already loaned us money to buy up the mortgages, and now we want them to lend us more money to buy them back? At lower prices?
The bankruptcy revisions, which Obama supports, make a lot more sense, for reasons I explain here.
How would McCain buy up those "bad home loan mortgages"? Who would be the seller? The really bad ones are sitting in pools that back up CDOs and similar instruments. To sell them for less than face value would require the approval of the holders of the securities for which those mortgages are collateral. The bankruptcy provision solves this one, because the holder gets to contest the value of the property, but the Judge decides, and it is done. No approval of holders is required.
Who would decide what the price would be for those pieces of paper? Some crony of Paulson? How about a Bankruptcy Judge who makes a decision in accordance with the rules of evidence in a proceeding where both sides get to prove up the value of the property?
And here’s the best part: we don’t buy the bad paper. We just reset it and leave it with the investors who bought it.
The bankruptcy amendments solve the problem. McCain’s "plan" is just a stupid election trick.