Many economists say John McCain‘s mortgage bailout plan would be incredibly costly to government, while Barack Obama‘s campaign says it would reward the financial institutions that issued bad mortgages, writes McClatchy.

“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,” Jason Furman, Obama’s economic policy director, wrote in an e-mail to reporters. ”

“Furman called McCain’s plan “erratic policy-making at its worst.”

“Many economists objected that McCain’s plan has no requirement that banks must take a loss during the refinancing of distressed mortgages. A plan passed earlier by Congress would allow these mortgages to be reworked and put into a government-backed mortgage only if the bank agrees to reduce the present-day value of the home. In many parts of the country like California and Florida, home values are well below the value of the existing mortgage.

“Alan Blinder, a former vice chairman of the Federal Reserve, said taking in mortgages at face value “seems wildly generous to the banks.” Blinder, a Princeton University economist, has proposed a plan not unlike McCain’s to “get in at the ground level” and address the root of what’s ailing the U.S. economy. But Blinder would not purchase loans at face value.”

Read the full story here.

Peter Fray

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