The Mortgage Mess

Memo to Ric Davis:
The winning economic strategy for John McCain is to emphasize the first Bush administration and Bush 2 including the two terms of Clinton. For twenty years the government pursued a soft money policy. It was dictated by Alan Greenspan. Wall Street was seduced and abetted by dozens of money managers. They borrowed from the Federal Reserve at 2% in order to lend at 6% or higher amid guarantees by the government. The mortgage collapse was only the outward sign of a deep-seated sickness supported by Fed Chair and Treasury go-alongs. Both rejected tough lending standards and tight money in favor of export markets which cost jobs in the United States.
All of Wall Street, most of the banks, and intermediaries benefited from this policy until someone asked, "where are the customer's yachts?" There weren't any! Jack Bogle has been the lonely expert asking this question on behalf of Vanguard investors. But, not even dollar averaging can stem a credit crisis.
Foreclosures will not wipe out our financial markets. The awakening of credit-worthy borrowers repaying their loans might! If money flows into the banking system, cashing out deadbeat loans, it will not create net cash, but shrink capital availability. It makes banks wary of lending--and increases the cost of borrowing. Only the fortitude of John McCain can withstand the pressure of special interests trying to protect their hindquarters. Only a dose of castor oil will solve the problem. Only John McCain and Sarah Palin have the stomaches to administer the remedy.
Give a three-year tax holiday to all credit worthy borrowers who repay their home equity loans which supported a lavish lifestyle unsupported by income. Let’s have a Reagan-like dose of reality. Mistakes: 1. Equitization of mortgages for the elderly. Robs capital from their progeny. 2. Equitization of homes--making non-tax deductible personal debt tax deductible. Credit card debt becomes riskier. Who is responsible?--the government. A disgraceful example of hypocrisy.