G. Frink's

[Update below: 10/09/2008]

With the economy diving into recession, John McCain marked the second presidential debate with a desperate mortgage-buyout stunt whose implementation, effect and ultimate cost are all unknown.

Former Secretary of Labor Robert Reich called it "the stupidist plan I've heard yet" for helping homeowners.

Now a University of California at Berkeley professor of public policy, Reich explains that:

He wants the government to buy mortgages from the banks at face value and then write down the principal for homeowners. This would be the biggest handout yet to the financial industry. Taxpayers would take all the losses, including the downside risks of additional defaults if houses drop further in value, while the banks would get off scott free.

McCain says his plan would stabilize the housing market but Christopher Mayer, Paul Milstein Professor of Real Estate at Columbia Business School, isn't convinced. He says the plan, if it can be called a plan, is too narrow to help the housing market as a whole.

Mayer explains:

As the plan stands now, it helps the people who got into the most debt, and it helps the lenders, but it doesn't really help the housing market.

So it seems that the McCain stunt would not work as described, would do nothing for homeowners who aren't in trouble and would burden all of us to help irresponsible lenders.

Update

After twenty hours of "thinking," the McCain homeowner mortgage bailout became something else altogether.

The version of the McCain stunt posted Tuesday night after the second presidential debate said:

Lenders in these cases must recognize the loss that they've already suffered.

Thus reckless lenders were not being protected against their mistakes and the taxpayers were not being soaked with the cost of that kind of lender protection.

That sentence was omitted in the version
posted Wednesday.Why the change?

Mike Allen of Politico reports:

A McCain campaign official explained the change: "That language was mistakenly included in the initial draft and it’s been corrected. It doesn’t reflect the intentions of the initiative, which necessitated the correction and the removal of the sentence. A simple mistake."

Thus the McCain campaign argues that the debate-night stunt was always intended to be something of a taxpayer-soaking, lender-protection act.