Thursday Morning: McCain's Mortgage Plan Sinks In; Downticket Worries For The GOP; And Sartorial Stonewalling In Minnesota

Good Thursday morning to those of you who haven't taken the day to reflect and atone.

The media is starting to get a handle on the housing proposal John McCain announced during Tuesday night's debate. According to Politico's Mike Allen, a contributing factor to the general confusion over McCain's plan is that the campaign changed its language on a key provision of the proposal between Tuesday evening's press release and yesterday's more detailed description. They difference is in who eats the write-down of (literally) millions of re-financed mortgages. Allen explains:

The document posted and e-mailed by the McCain campaign on Tuesday night says at the end of its first full paragraph: "Lenders in these cases must recognize the loss that they've already suffered."

So the government would buy the mortgages at a discounted rate, reflecting the declining value of the mortgage paper.

But when McCain reissued the document on Wednesday, that sentence was missing, to the dismay of many conservatives.

That would mean the U.S. would pay face value for the troubled documents, which was the main reason Sen. Barack Obama (D-Ill.) gave for opposing the plan.

In other words, McCain's plan proposes that the government would buy distressed mortgages from lenders at their paper value (i.e. based on the contracts the borrowers initially signed), and then re-issue them to the homeowners at a fixed rate, based on their current value -- which in many cases is less than homeowners currently owe. The cost of the write-down would thus be passed on to taxpayers.

In comparison, in the housing bill Congress passed this summer (and that went into effect this month), the government helps re-finance mortgages only after lenders write them down and eat the losses. And last week's bailout package focuses on enabling the government to buy bundles of mortgage-backed securities in an effort to stabilize banks, and therefore the credit market. It also leaves open the option of the Treasury purchasing individual mortgages, but does not say exactly how that would work.

The Obama campaign did an about-face on McCain's proposal after the change in language became apparent. Its initial response Tuesday night attempted to give Obama credit for the idea of the Treasury purchasing individual mortgages. Then yesterday the campaign released this statement from economic policy adviser Jason Furman lambasting McCain's plan:

John McCain wants the government to massively overpay for mortgages in a plan that would guarantee taxpayers lose money, and put them at risk of losing even more if home values don't recover. The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud.

The McCain campaign's response to that criticism was decidedly populist. Economic adviser Douglas Holtz-Eakin said in a statement that Furman's response suggests that Obama "wants to defend using the taxpayers' money to prop up Wall Street instead of keeping people in their homes and providing jobs on Main Street."

The open question: whether the potential upsides to McCain's plan would balance out the "moral hazard" of bailing out the lenders.

Ok, phew. Onto other news.

Out in Amurca, you'll never believe it, but there are other candidates running for offices other than President! 435 House seats and 35 Senate seats are on the ballot, in fact. This morning's NYT says the landscape is looking rough for down-ticket Republicans.

"The last week has severely damaged Republican candidates," said Stuart Rothenberg, a nonpartisan analyst who predicts that Democrats could gain as many as six to nine Senate seats and 25 to 30 House seats. "Everything points to warning signals for Republicans."

If such projections by Mr. Rothenberg and others are realized, it would push Senate Democrats tantalizingly close to the filibuster-proof 60-vote majority that has eluded Senate leaders since the late 1970s. While the environment could change again in the remaining weeks, recent polling suggests a fundamental shift, with Republicans absorbing more of the blame for the economic uncertainty.

But don't forget, gentle readers: economic messes nearly always favor Democrats, and this week's crisis news reached a fever pitch. But there are still nearly four weeks to go before the election, and October is famous for game-changing surprises. So, Democrats, put away your drape-measuring equipment and quit counting those unhatched chickens.

And finally, the questions over whether a GOP donor covered "lavish clothing purchases at Neiman Marcus" for MN Senator Norm Coleman -- a story first reported by a Harper's blog with anonymous sourcing -- seems to be gaining national traction after defensive stonewalling from Coleman's office, which responds to nearly every question about the story with the non-answer "the Senator has reported every gift he has ever received." Coleman is locked in a tough re-election fight against Democrat Al Franken, with Independent (former Senator!) Dean Barkley currently polling in the mid-teens. His campaign's inability to provide a satisfactory response to what seems like a minor question may well give this story legs during the final weeks of a tight campaign.

-- Evie Stone

10:30 AM ET | 10- 9-2008 | permalink

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