Through A Democrats Eyes: Why McCain And Not Obama. Part 2 – Domestic Policy

NOTE:  Please be sure to read part 1 – foreign policy and part 3 – character and social issues.

 

While foreign policy is technically the realm of the President and the primary job of the position, recently domestic policy has taken a front seat in much of the focus and the attention of the President.

Unlike in Foreign policy, the President has very little actual power in setting Domestic policy.  The power is mostly derived from “the power of the podium” or the ability to command attention and focus the nation on a particular subject.  And even though it is the area where the President has the least amount of power, the President can also be the biggest single agent for change.

Domestic policy is also the thing that most directly effects each of our lives.  That is why it tends to be such a big part of the discussion in Presidential elections, especially since Clinton and his famous phrase “It’s the economy stupid.”

This time around, the economy is a pretty huge factor, especially considering the current circumstances.  Domestic policy is a complicated and large subject, but this time around it will basically boil down to housing, taxes, environment/energy and healthcare in the campaign rhetoric, so I will stick that even though there are innumerable other issues that get mentioned all over the place.

Housing

This is arguably the most pressing issue that the country is facing at the moment and there is plenty of blame to go around.  Both Democrats and Republicans bear much of the responsibility for the state of the economy, as do the banks and even the public.

Even though there is plenty of blame to go around, there are a very few specific events that provided essential links in the chain that let us to the level of catastrophe was face today…  and the largest one was the conversion of Fannie Mae and Freddie Mac into what essentially amounted to a hedge fund.  It was the expansion of Fannie and Freddie into the marketplace that caused one of the major distortions heightening the devastation of potential economic disaster.

There were a few key points in which this distortion of the market could have been reigned in over the last several years, but the Democrats fought against them tooth and nail…  including Barack Obama, who sits on the Senate oversight committee that is responsible for Fannie and Freddie.

Oddly enough, the Democrats fought to loosen the rules of mortgage lending, under the guise of opening up opportunities for the poor and minorities, which is fine, but they began to see any attempt to tighten lending standards as taking away opportunities rather than smart business.

This is a quintessential problem with having politicians directly involved in economic and business decision making.  They tend to make decisions based on the desires of their constituency or based upon ideology and not based on sound economics.

On the other hand, John McCain had the good judgement and foresight to see the problems inherent in the new iteration of Fannie and Freddie.  In 2005-2006, John McCain sponsored a bill that would have increased regulation and oversight on Fannie and Freddie.  In short, these regulations would have reigned in many of the things that were causing the massive market distortions and either prevented many of the issues we now face or greatly mitigated the damage currently being done to the economy.

The bill was tabled…  Obama and the rest of the Democrats let the bill die.

So much for Obama’s good judgement.

As for the proposed plans themselves…

Obama wants to provide incentives to mortage companies to refinance people into stable 30 year fixed rates, ask mortgage companies to voluntarily write down the balances on loans to something the people can afford, and to define “predatory lending” on a federal level.

The program proposed is total crap.  And there are similar programs in place already and none of the banks are participating because it asks them to voluntarily forgive billions of dollars in debt owed to them…  for what?  Because Obama smiles real purdy?  The write downs that Obama asks them to volunteer for would bankrupt every bank in the United States.

McCain, on the other hand, is the smart one.  First, a bit deeper of an explanation of what has happened in housing…

The fundamental cause of the problems with the banks and the economy as a whole originate in the housing crisis.

The housing bubble led to greater and greater numbers of risky loans and exploded when Fannie Mae and Freddie Mac started acting much like a hedge fund and invested in the very paper they were insuring.  This led to an explosion in the market and decreasing underwriting standards, especially when Fannie Mae and Freddie Mac made the “Alt A” programs available.

The banks began to group these loans (aka bank debt) together into packages and sell them off to other banks.  The bank that bought them took these packages of loans  and divided them into “risk tiers” and sold those tiers as derivatives.  These banks then grouped the derivatives together and divided them further, until the original group was chopped into so many loans it was impossible to tell what was where.

This, in theory, should have minimized the risk associated with the loans.

Because of the grouping and dividing and selling and grouping and dividing and selling, virtually all the banks were heavily invested in these MBSs (mortgage backed security) and CDO’s (collateralized debt obligation.)

Then the economy slowed…  and housing was the one beacon of light in a dimming economy, so the banks, hedge funds, investors, and consumers invested even more heavily in real estate.

As time went on, the banks began to discover that a much larger than expected percentage of the loans were given to people that should not have gotten them.  The bulk of these “bad loans” were found in the Alt A realm that banks would not have normally invested as heavily in, but for the actions and rules of Fannie and Freddie.

With the economy continuing to slow, eventually the housing sector peaked and the dam broke.

Foreclosures began to happen at an epidemic rate because the people that should not have been in the loans they were given couldn’t pay.

So the banks/hedge funds and especially Fannie/Freddie realized that they should not have been offering all these loans tightened up their lending standards because they couldn’t continue to offer the crap loans they had been offering, which would have made the hole they were in that much deeper.

The side effect of this was that, especially in a slowing economy, fewer and fewer people could qualify for new loans to buy all the houses that were pouring on to the market from new construction projects (at an all time high) and from massive foreclosures.

The housing market glutted, the banks began to dump the foreclosures for next to nothing and all the other houses sat on the market for a year or more.

With only the foreclosures selling, they were the only sales to peg the prices of houses against and property values started dropping like crazy, especially in places where the bubble was biggest…  CA, FL, NV.

This has caused the secondary crisis…  there are millions upon millions of people upside down on their houses right now.  Millions.

So because of the problems with 10-15% of the loans, and the foreclosures they led to, the values of the houses with credit worthy people now had problematic loans because their property was worth less than the mortgage was for.  Hundreds of thousands of people are now “upside down” on their house, even though they have been faithfully paying their mortgages.

Essentially, the banks no longer knew what any of their loans were worth, because the assets tied to the loan weren’t worth enough to cover the outstanding debts, increasing the balance sheet debts of the banks by billions and billions and billions of dollars.

This made the banks “uncreditworthy” and so they stopped loaning money to eachother, leading to near of total collapse of a huge number of banks.

So, in order to solve the valuation problem, keep people in their homes and prevent more foreclosures, and to prop up the prices of homes as much as possible, earlier this year, the Congress approved a program called the “FHA Secure.”

This program basically works like this…  if you have a $300,000 loan and your house is only worth $225,000 now, if the bank will lower the balance to the $225,000 then the FHA will insure the loan, making the loan more immediately marketable.

The bill and the program went into effect October 1.  An extension of the plan is what Obama proposes in his answer to the housing problem.

Well, not a single bank has implemented this plan to date.

The problem is two fold;

First, it is voluntary…  the banks don’t have to do it.

Second, it requires that the banks take HUGE writedowns and though it may help even out the bottom line in the long run, in the short term those HUGE writedowns would probably kill them at this point…  especially perceptually.

Nobody wants that.

Ok, so now that we are caught up to present times, we can talk about McCain’s housing plan.

John McCain has basically taken the FHA Secure program, and instead of making the banks take the writedowns and essentially forfeit hundreds of billions of dollars…  McCain wants to re-allocate the “Bailout” money to buy out the negative equity on these people’s houses.

Why is this great?

1.  The estimated cost, about $300 Billion…  A number that is less than half of the “Bailout” which only helps banks/Wall Street and does nothing directly for mainstreet.

2.  It keeps people in their homes, reducing their balances and their payments.

3.  It helps prop up housing prices, or at least stabilize them, because it will lead to fewer foreclosures.

4.  It bails out the consumer and the banks in one fell swoop.

Helps the folks, helps the banks.  Bingo.  I think he has something right there!

Read more here

Brilliant.

This is the best idea to solve the crisis I have heard so far (other than the fed buying commercial paper… also brilliant.)

It’s also Hillary Clinton’s idea.  Smart Lady.  And McCain’s a smart guy for listening to her, and not being afraid to take advice from a leading Democrat.  Further proof of his propensity to work across the aisle.

Taxes

On the tax issue, there are really three problems with Obama’s tax plan…  the fact that no one in his camp can seem to get the particulars straight, a closer analysis of the plan shows all sorts of unpleasant details the rhetoric does not reflect, and the reality of the future.

As for clarity, it seems that the Obama camp can’t exactly get straight who and what Obama plans to tax.  Past history gives us some insight into inclination and current rhetoric coming out of the camp is all over the map.

In the past, both Biden and Obama have voted for a tax increase on people that make as little as $42,000 a year, a figure that gives even me, a moderate liberal, a shiver down my spine.

In the past week or so, the Obama camp has moved their target level of who will not get a tax increase from those making under $250k to $200k to $150k to $120k and such a sucessive and consolidated slide in rhetorical estimates seems fishy to say the least.

And also, there has been no real answer as to how giving the 40% of Americans that do not pay income taxes can even get a tax cut?

As for how effective the tax cut is even going to be….  well I have my doubts.

First things first, the 40% of Americans that don’t pay taxes.  Well, the “tax cut” that these people are going to get is not a tax cut at all.  Obama is famous for his rhetorical flourishes and, in this case, the flourishes basically equate to a lie.  For the 40% of Americans that don’t pay taxes, it’s a refundable tax credit not a tax cut.

What does this mean?  Well, when these people file their taxes, they will receive money back…  even though they didn’t put anything in.  Translation:  It’s a handout.  Rhetorically, the Republicans like to call it “Welfare” but it’s not, not really…  but it is definitely a government handout.

When confronted with this, the Obama camp responds with…  “everyone who works pays taxes.”  Well, this is true, and they cite payroll and fica taxes.  But they brush past what these taxes are!  These are taxes that pay for social security and medicare.

So, essentially Obama’s plan is defunding Social Security from the contributions of 40% of wage earners…  and then still giving them Social Security benefits even though they effectively put nothing into the system?

Whaaaat?  That makes no damn sense.  At all.

Now, as for the actual cuts…  Well, even thought the Bush tax cuts did disproportionately lower the amount of money that the wealthiest Americans pay in taxes, it did cut the tax rate for all Americans that actually pay taxes and even with the Bush cuts, the top 10% of wage earners still pay 70% of all the income taxes.

And, so while Obama is promising not to raise taxes on people making less than…  well, who knows….  what is Obama’s plan for the Bush tax cuts?  He is going to let them expire… But Obama doesn’t “count” allowing the Bush tax cuts to lapse as a tax increase, it’s allowing a tax cut to lapse.

See the difference?  Me either.  Rhetorical trick.  Again.

When the income tax cuts lapse, Americans will see increases in their taxes, even if their household income is as low as $25,000.

Then there are the payroll taxes themselves and even though Obama promises not to raise taxes, by which he means income taxes, on people making under $250k, the payroll taxes would double for everybody making more than $94k.

So I guess that the people making over $94k would be making up for the 40% no longer paying into the system?  Oh yeah, spread the wealth…  you don’t wanna be greedy…  like being able to afford to put your kids through college.

Then there is the increase in the Capital Gains tax.  Now this is a friggin nightmare.

With the stock market eating dirt, capital infusion is absolutely essential.  All the 401k’s and many of the pension and retirement programs in this country, not to mention personal assets, are dependent on the stock market and many Americans have seen their retirement savings evaporate over the last month or two.  We need to strengthen the market and fast…

And yet Obama’s plan would DOUBLE the taxes on people that do invest in the market?  How the hell is that supposed to encourage investment and capital infusion?

It doesn’t.

And the normal response I get from Obots is this…  oh, rich people this, rich people that…  well, 50% of all Americans are invested in the market.  Yeah, 50%.  That’s a tax increase on a lot of people.

Obama also wants to increase corporate taxes.  Well, not only is this horrible for business, and will lead to more jobs being shipped overseas, and a therefore a contraction of the tax base, but it in effect raises taxes on every single American. Corporations don’t “pay” taxes — they collect taxes from customers and pass them along to the government.  If corporate taxes are increased, the prices on the products are increased proportionally.

I also don’t understand why, if Obama and Biden, think it’s patriotic to pay my taxes so that the middle class and poor will get more benefits…  and I make half what they do, yet gave twice as much to charity last year as they did!?!?!

McCain, on the other hand, wants to decrease capital gains taxes to encourage investment.  He wants to cut corporate and small business taxes to not only keep jobs here at home, but create new ones.  John McCain’s plan cuts taxes for ALL Americans, allowing them to keep more of their money and to decide for themselves to do what they want with their money.

And here is the part where the Obots start yelling about how people don’t need that extra money to rennovate their kitchens or to rent those jet ski’s on their vacation or to buy the custom made suit because those things are frivolous…

But they ignore the fact that this spending is responsible for millions of jobs across the country.  What about the small businessman that owns the rental store, the businessman that owns the retail center the rental shop is in, the driver that works for the shipping company that delivers inventory, the factory worker that makes the jet ski, the miner that mines for the metals to build the jet ski and on down the line?  Or what about the contractor, carpenter, electrician, manufacturer, logger, miner, rental companies, and delivery comapnies that are dependent on people redoing their kitchens?  Or even the tailor, the cloth maker, the thread maker, the needle manufacturer, the miner, the retail space owner, and the like that depend on people having clothes made?

And what about all the sales tax revenues that are generated from these transactions, not to mention the payroll, income and fica taxes?

Cutting taxes does not necessarily mean lowering tax revenue.  There are innumerable examples of times that taxes were cut, the tax base widened and revenues increased.

I also don’t really understand how the math works out to where Obama can increase the taxes on 5% of wage earners by 3% to pay for a tax cut for 55% of wage earners and a refundable tax credit for the remaining 40%, and still increase spending by $1 Trillon….  And decrease the Federal Deficit at the same time?

Environment/Energy

McCain and Obama are both ok on the environment in general.  Both recognize that global warming is an issue and that we have to start decreasing our carbon emissions.

The difference is energy.

The newest controversy is coal.  It has come to light that Obama has made a clarification of his energy plan.

Obama plans to tax the coal industry so heavily that it will bankrupt all the coal plants in the United States and that because of this energy prices will skyrocket.

His exact words…  “So if somebody wants to build a coal-powered plant, they can; it’s just that it will bankrupt them because they’re going to be charged a huge sum” and “Energy prices would skyrocket.”

Well, I am friggin sorry, but gas prices already skyrocketed and put hundreds of thousands out on the streets…  We need to find a different way to get clean energy without bankrupting the industry responsible for generating over half the energy in the United States, as well as being responsible a huge number of jobs in Ohio, Pennsylvania, and West Virginia.

As for the rest…  they are basically the same.  Obama has waffled and claims to now support off shore drilling, they both support the expansion of solar, wind and nuclear technologies and increasing funding to basic r&d for projects such as improved hybrid and battery technologies.

I would have to say that for all the rhetoric that the Democrats give to the environment, much of it seems to be lip service.  It really hit me that this line is nothing but lip service when I went to the Democratic Convention in Denver this year and never saw one recycle bin…  at the Pepsi Center, at Mile High, at the designated protest area, in the parks where information booths were set up, at the parties…  Not a single one.

As crazy as it may sound, I actually believe that the Republican may have better environmental sensabilities than the Democrat.  John McCain stood up against his party and declared an environmental emergency.  The Republican Convention not only had recycle bins readily available, but actually recycled the unused paper flags that the Democrats threw in the trash in Denver.  John McCain also has a section of his campaign paraphrenalia store that is environmentally friendly.  Obama…  not so much.

So, at best they are equals on environment and energy, and at worst, Obama will bankrupt the country…  in yet one more way.

Healthcare

This is the part of both campaigns where I think they both pretty much suck…  and suck hard.

Obama bascially thinks that by doing things like creating savings through putting medical records into an electronic format, that he would create so large of a savings that prices on insurance would go down by $2500 a year.  Even the Obot reporters at the AP called this a bunch of bull.  Just because you save insurance companies money, doesn’t mean they are passing along the savings.

McCain’s plan is horrendous as well.  The $5000 refundable tax credit for healthcare threatens to end employer provided healthcare, which would leave millions of Americans unable to qualify for insurance because of tighter standards and pre-existing conditions.

The one thing that leaves me a bit hopeful about McCain is that he did put forward a bill that would allow Americans to import drugs from Canada, which would have made prices significantly cheaper for Americans, and also supported the bill that would have allowed Medicare/Medicaid to negotiate with drug companies on prices.

The Final Verdict

Housing – McCain is better… way better.

Taxes – McCain is better

Environment/Energy – Tenuous tie, possible McCain victory

Healthcare – They are both bad.

Winner?

What do you think?

You Can Find Part 1 Here