McCain vs. Obama: where they stand.

As a final note before tomorrow's election, Builder magazine has an article summarizing the stands of both John McCain and Barack Obama. Although many builders typically vote along strict Republican lines, some well-known builders such as Toll Bros.' Bob Toll and Eli Broad, founder of Kaufman & Broad, support the Democratic nominee. If nothing else, that should make for interesting conversations at industry functions! From a BuilderOnline.com story:

With no end to the housing downturn in sight, with banks and investment firms hemorrhaging billions of dollars, then failing, and the federal government offering more than $1 trillion and counting to try and stem the tide of the credit crisis, the next president of the United States may hold the future of the country in his hands. Many businesses and individuals are hurting, but the home building industry has more at stake than most.

To say that this election is important to builders would be an understatement of the greatest magnitude; the economy is in a full-fledged nose dive, and builders need a president to restore the American people’s confidence, create new jobs, and right the capsized economy before people will start buying homes in large numbers again...

Finding real answers in the candidates’ whistle-stop promises and scripted answers to softball questions is difficult at best. To provide clarity on the candidates’ positions, Builder first asked readers to rank their top concerns on a 1 to 10 scale with 1 being the highest priority and 10 being the lowest. Then we distilled the candidates’ positions on some of those issues. Our survey revealed that many of you rate the energy and credit crises most important, with immigration, infrastructure development, affordable housing, and green building rounding out the list of your chief domestic concerns.

Read on to find out where McCain and Obama stand on several of your top issues.

Click here for full story.

"The Economist" on the Presidential election

The Economist magazine has an excellent series of articles on the upcoming election, the issues we face and how the opposing candidates have pledged to handle them. And how does a group of economists rate Bush's tenure? It ain't pretty. Listed below are links to each of the major articles:

Introduction

An inconvenient truth

John McCain and Barack Obama

The battle of hope and experience

The Economy

A choice of remedies

Regulation and trade

Changing the rules

Foreign policy

The best of enemies

Iraq and Afghanistan

Which war?

Health care

Running for cover

Immigration

The lurking monster

Energy and the environment

Greener than thou

Education

Still at risk

Crime

Hanging fire

Values

Endless culture war

Conclusion

The three elections

Next, how economists rate the candidates' plans:

The Economist's poll of economists

Examining the candidates

McCain announces plans to buy failing mortgages directly

As Barack "That One" Obama (apparently no relation to "That Girl," played in the late 1960s-early 70s by actress Marlo Thomas) sat on a nearby stool at Tuesday night's debate, John McCain outlined a bold proposal to spend up to $300 billion to purchase unaffordable mortgages directly from lenders and homeowners and replace them with the fixed-rate variety. From an LA Times story:

The Republican nominee, who long has railed against excess government spending, outlined a program that his campaign said would cost roughly $300 billion.

As Sen. Barack Obama, the Democratic nominee, watched from a nearby stool, McCain promised to launch a major federal effort to purchase failing mortgages directly from homeowners and mortgage providers and replace them with less expensive, fixed-rate mortgages....

"Is it expensive?" McCain asked. "Yes. But we all know, my friends, until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing the economy."...

McCain's bold proposal carries considerable political risk. Democrats have sought to portray him as erratic and impulsive, and his abrupt unveiling of such a complex plan may fuel those charges.

Only time will tell...

Zillow poll: McCain or Obama better for housing?

The real estate website Zillow conducted an online poll among its users asking which Presidential candidate was better-suited to solve the housing crisis. From an Inman News story:

A new survey published Friday -- conducted online by Harris Interactive on behalf of real estate Web site Zillow.com -- found that between the two major presidential candidates, 58 percent of Americans think Sen. Barack Obama will better address the current state of the housing market than Sen. John McCain (42 percent).

According to the survey of 2,016 U.S. adults, the perception of who is better to address the housing market is heavily influenced by whether respondents own a home, which represents approximately two-thirds (64 percent) of U.S. adults. Among non-homeowners, some 67 percent think Obama will better address the housing market than McCain (33 percent). Among current homeowners, 52 percent of homeowners think Obama will better address the market versus the 48 percent who think McCain will...

The survey also showed housing market issues are among the top three most important issues affecting the United States that the new president should be prepared to address after taking office. The most import issues are energy/gas prices (82 percent), U.S. debt (70 percent) and housing/mortgage/foreclosure (63 percent), although this varies based on which candidate respondents plan to vote for...

For example, of the 41 percent who said they plan to vote for Obama in November, 71 percent think housing/mortgage/foreclosure issues are among the most important compared with 52 percent of those who plan to vote for McCain.

According to the Zillow survey, 14 percent of adults say they don't know who they plan to vote for; 6 percent declined to answer; and 7 percent say they do not plan to vote in the upcoming presidential election.

Politics derails bipartisian bailout plan

In the beginning, there was a $700 billion Plan (at least the first phase of it), and some thought it was good (others weren't so sure). Then the President went on national television to explain the catastrophic consequences of failing to approve the Plan (i.e., a potential Depression), which some thought good and others thought was simply more fear-mongering.

The Plan was about to be approved and then -- Poof! -- Republican candidate John McCain put his campaign on hold and swept into Washington to -- what? derail the Plan? fly off to Alaska with Sarah Palin and watch Russia from a doorstep? -- and now it seems that Congress is at an impasse. Obama's waiting for a Plan to be announced first before he issues his own specifics on what to do (sort of like voting "Present" instead of "Yes" or "No").

Rome -- burning. Leaders -- fiddling. Voters -- really sorry now that they thought the proper way to vote for candidates of high office was to consider sharing a beer (although that Shiner Bock from Texas is good stuff!). From a New York Times story:

The status of a rescue plan for the nation’s financial system was in doubt on Thursday, at least for the moment, as lawmakers emerged from a meeting with President Bush to say that negotiations had a ways to go...

One critical snag seems to be opposition to the $700 billion plan by conservative House Republicans.

“My hope is that we can get a deal,” said Senator Christopher J. Dodd, chairman of the Senate Banking Committee, hours after House and Senate negotiators had announced that an accord was at hand. President Bush had hoped that an agreement could be announced after the late-afternoon meeting.

Mr. Dodd, looking tired and annoyed, complained that the late complications were making the episode sound more like “a rescue plan for John McCain,” the Republican presidential candidate, than one for the financial system.

It does no good, Mr. Dodd said, “to be distracted for two or three hours by political theater.”...

Mr. McCain and his Democratic opponent, Senator Barack Obama, left the White House by a side entrance without commenting. The initial silence of the presidential candidates reinforced the impression that thorny issues still need to be addressed...

It has become abundantly clear, that members of Congress are hearing from their constituents, many of whom are furious about the proposed rescue.

Democrats said that Senate and House Democrats and Senate Republicans and the White House were ready to hammer out a deal, but that House Republicans balked.

“We were ready to make a deal,” said Representative Barney Frank, Democrat of Massachusetts, who attended the meeting and was standing next to House Speaker Nancy Pelosi as Mr. Paulson Jr. asked for more time.

“The House Republicans now tell us we’re not for this, we have got something else,” Mr. Frank said.

He complained that the new House Republican counter-proposal included ideas about private mortgage insurance and a cut in the capital gains tax that Mr. Paulson had already testified would not work...

Conservative Republicans, in particular, have said that such a huge government intervention violated their free market principles.

A senior Republican lawmaker, speaking on condition of anonymity so as not to undermine the party leadership, said there was a “violent reaction” among House Republicans to the Paulson plan. He said backers of the alternative, one of several that have been proposed in the House, are calculating that they can force the negotiators to accept it as part of a larger deal.

No, not another RTC-type bailout. Perhaps another "RFC," updated from the 1930s.

Despite the constant parade of "no bailout!" exclamations accompanying email signatures on blog comments and the efforts by certain members of the blogosphere to energize an anti-bailout crowd, it seems that the housing/mortgage/financial crisis is spinning out of control to the point that some point of bailout seems necessary (something unhappily predicted by this blog back in late 2007). How might it look? A story in the Wall Street Journal reviews:

The federal government is working on a sweeping series of programs that would represent perhaps the biggest intervention in financial markets since the 1930s, embracing the need for a comprehensive approach to the financial crisis after a series of ad hoc rescues.

At the center of the potential plan is a mechanism that would take bad assets off the balance sheets of financial companies, said people familiar with the matter, a device that echoes similar moves taken in past financial crises. The size of the entity could reach hundreds of billions of dollars, one person said.

Another proposal would be the creation of federal insurance for investors in money-market mutual funds, coverage akin to the insurance that currently safeguards bank deposits. The move is designed to stem an outflow of funds as consumers start to worry about even the safest of investments, a sign of how the crisis is spreading to Main Street. There is $3.4 trillion in money-market funds outstanding.

In addition, the Securities and Exchange Commission is set to propose a temporary ban on short-selling. It's not clear how broadly the ban might extend, but it could apply only to financial stocks...

The administration had been taking a patchwork approach to the financial crisis, putting out fires as they ignited. The new moves represent an effort to take a more systematic approach, after a spiral of bad debts, credit downgrades and tumbling stocks brought down venerable names from investment bank Lehman Brothers Holdings Inc. to insurance giant American International Group Inc. Banks have grown unwilling to lend to one another, a sign of extreme stress, because financial markets work only when institutions have faith in each other's ability to meet their obligations.

Word of the plan came the same day as the Federal Reserve and other major central banks offered hundreds of billions of dollars in loans to commercial banks to alleviate a deepening freeze in the world's credit markets. That step appeared to have moderate impact on lending among banks. Meanwhile, a wave of redemptions continued hitting money-market funds, causing a second large fund to shut to investors...

The flurry of moves under discussion may bring the markets some breathing room, but it isn't clear whether they will amount to a long-term solution to the complex financial problems sweeping the market...

Treasury Department officials have studied a structure to buy up distressed assets for weeks, but have been reluctant to ask Congress for such authority unless they were certain it could get approved. The intensified market turmoil may have changed that political calculus, even with less than two months left until the November elections.

A big question still to be answered is how the government will value the assets it takes onto its books. One possible avenue could be some sort of auction facility, so that the government would not have to be involved in negotiating asset values with companies. Financial companies would likely take big losses...

Exactly how such an entity might be structured isn't yet clear. The possible plan isn't expected to mirror the Resolution Trust Corp., which was used from 1989 to 1995 during the savings and loan crisis to hold and sell off the assets of failed banks. Rather, a new entity might purchase assets at a steep discount from solvent financial institutions and eventually sell them back into the market.

The program may look more like the Reconstruction Finance Corporation, a Depression-era relief program formed in 1932 by President Hoover that tried to inject liquidity into the market by giving loans to banks and other businesses.

According to a top congressional aide, the Treasury department wants authority to either control the program or have it be a separate division of the government...

Thursday, Republican nominee Sen. John McCain sought a broad expansion of government regulation over financial institutions, including the formation of a body to both assume distressed mortgages and help failing investment banks.

Saying the government cannot "wait until the system fails," Sen. McCain called for the creation of an entity that would essentially help companies sell off bad loans and other impaired assets. It is unclear how the body, dubbed the Mortgage and Financial Institutions trust, would operate, including whether or not institutions would seek help or whether the government would intervene on its own behalf.

His rival, Democratic Sen. Barack Obama of Illinois was less specific about what steps he would take, offering broader outlines of policy proposals that included a "Homeowner and Financial Support Act." The measure, which would inject capital and liquidity in the financial system, is designed to provide a more coordinated response than "the daily improvisations that have characterized policy-making over the last year."

Can't wait for those debates!

John McCain on the economy

In the mood to learn about John McCain's plan to fix the economy? Fortune magazine has a detailed interview right here (the one with Barack Obama will be posted separately).

Positive fall-out from the Bear Stearns rescue

Economics is one of the most complicated social sciences one can study, and for good reason: besides the basics of supply and demand, the roles of human psychology and the inter-relations of a complex economy in today's world can be confusing. That's why I liked an article by David Weidner in today's MarketWatch.com on how the Bear Stearns bail-out may actually help save Main Street:

If you're thinking about refinancing your mortgage, getting a loan to buy a new car, or switching to a lower-interest rate credit card, you can thank the Federal Reserve for your ability to do so.

You might also want to mention that the recent boost to your 401(k) portfolio is appreciated as well.

Though it may not be obvious, anyone who participates in the credit world -- and that's most of us -- owes the Fed a debt of gratitude for stepping in and helping to prevent the collapse of Bear Stearns Cos...

Sure, the Fed is taking it on the chin. Taxpayers will buy a boatload of sketchy securities from Bear and hope that they produce any kind of return. J.P. Morgan Chase & Co. with the Fed's backing, will absorb the rest of Bear through a buyout. Taxpayers will probably take a loss, but no one knows how much it will be. It could be $29.9 billion. It could be half that, or nothing.

The move is unprecedented. The Fed on rare occasions has backed up banks, but it's never backed up investment banks. The idea that investment banks get bank protection is what should be debated, but no, everyone wants to know if the little guy is getting screwed...

Call it a bailout or call it corporate welfare, Timothy Geithner, the New York Federal Reserve president, had something else in mind when he forced Bear into the arms of its rival and took responsibility for $30 billion in its assets: the financial system.

"Main Street, directly or indirectly, by holding mutual funds, by having a pension in mutual funds or insurance invested in securities -- all of these are ways the person on the street has an interest in a stable financial system," said Lawrence J. White, a New York University professor who served on the Federal Home Loan Bank Board during the savings and loan crisis.

"The ability of an individual to get credit also" comes from Wall Street, White said...

It's those kinds of truths that get lost in the rhetoric in Congress or on the campaign trail. The latest to chime in, Republican John McCain, said on March 25 that he didn't favor government intervention either for "big banks or small borrowers."...

Sorry John, but an economic collapse wouldn't be limited to those who made bad bets or mistakes.

To his credit, Senator McCain did admit that economics are not his strong suit. Yes, John, we know! So what say Senators Clinton and Obama?

Obama has said he'd like to create incentives for lenders to refinance mortgages and he wants crack down on irresponsible lenders. Most of the candidate's policies are tougher standards for lenders not borrowers.

Sen. Hillary Clinton has proposed a $30 billion program to help troubled home borrowers. She also wants to get former Fed chairmen Paul Volcker and Alan Greenspan on the job. But she also offered an honest assessment of the Bear Stearns bailout...

Though she stopped short of endorsing the Fed's bailout of Bear Stearns, she's come the closest of any candidate to acknowledging that Wall Street and Main Street are just two names for the American credit highway...

So, if the Fed is backing up investment banks like it does commercial banks, then shouldn't investment banks be under tighter controls? Isn't this intervention the equivalent of creditor insurance for those complex loan agreements between Wall Street banks?

If so, then there are bigger questions at stake than whether or not some fat cats got bailed out. Wall Street has been living a life of freewheeling risk, built around the fact the industry was doing it on its own dime. Backed by taxpayers, brokers may be subject to capital requirements, managerial competency standards and restrictions on what kinds of business it can do.

In other words, they'd be just like regular banks.

McCain prefers a hands-off approach to the housing market

As opposed to Democratic candidates Clinton and Barack, John McCain is continuing to insist that the government has no role in bailing out investors, lenders and homeowners who got in over their head (although admitting at the same time that the economy 'is not his strong suit.'). From a CNNMoney.com story:

Republican John McCain said Tuesday that government isn't in the business of saving and rewarding banks or small borrowers who behave irresponsibly though he offered few immediate alternatives to fixing the growing housing crisis.

"I will consider any and all proposals based on their cost and benefits," the certain GOP presidential nominee, who has acknowledged in the past that the economy is not his strong suit, told local business leaders south of Los Angeles.

Democrats accused McCain of lacking the skills needed to lead a country on the brink of recession.

"Instead of offering a concrete plan to address the crisis at all levels, McCain promised to take the same hands-off approach that President Bush used to lead us into this crisis," Democratic Party Chairman Howard Dean said in a statement...

On Monday, Democratic presidential candidate Sen. Hillary Rodham Clinton proposed several remedies to the home mortgage problems, including greater protections for lenders from possible lawsuits by investors, a variation of so-called tort reform.

McCain, in the midst of a weeklong western fundraising swing, focused on the home-financing crisis at an event in the Republican bastion of Orange County as he tried to rebut Democratic criticism of his economic credentials.

His pitch, though, offered little in the way of specific proposals to immediately address the crisis.

McCain said he wants to leave the door open to a wide array of proposals to address the problems and seemed to suggest he might even be open even to solutions that stray from the GOP line.

"I will not play election-year politics with the housing crisis," he said, adding he would evaluate all proposals. "I will not allow dogma to override commonsense."

But the small-government advocate and four-term Arizona senator also put restrictions on how far he was willing to go.

"I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers," McCain said. "Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy."...

He said any government assistance to alleviate the housing crisis must be temporary and should be accompanied by reforms that aim to make the system more transparent and accountable to prevent a repeat of the crisis. He said no assistance should be given to speculators, or people who bought houses to rent or as second homes.

Ok, I'm all for regulatory reforms (a bit too late, yet better than never), but if people LIED about getting into loans they couldn't afford (that's why they were called "liar loans"), just how is a government that has demonstrated little competence in such matters of detail hoping to verify just who was a speculator, an investor or a second-home buyer? All any of them have to do is re-establish residency in the home in question to make that their principal home, unless the government plans to involve the IRS, the FHA or another group to conduct some forensic accounting to separate the needy from the greedy.

In the short term, he called for the country's accounting experts to meet to discuss current accounting systems and said the country's top mortgage lenders should pledge to do everything possible to help their cash-strapped but creditworthy customers.

"They've been asking the government to help them out," McCain said of lenders. "I'm now calling upon them to help their customers, and their nation, out."

Not gonna happen, Senator. We punish the drug dealers in the "War on Drugs" yet ask for voluntary compliance when the pushers are dealing with mortgages and not crack.

As a freshman senator, however, McCain took a different approach. In early 1991, the Senate's ethics committee concluded that McCain "exercised poor judgment in intervening with the regulators" on behalf of banker Charles Keating Jr. Keating was a wealthy Arizona real estate developer and owner of a California thrift that failed during a nationwide savings and loan crisis - when Keating and other bankers made risky investments with depositors' money.

McCain was known for accepting contributions from Keating, flying to the banker's home in the Bahamas on his company planes and taking up Keating's cause with U.S. financial regulators as they investigated him. Keating served more than four years in prison for fraud.