Clinton's Ad

Hillary Clinton's going on the air in Wisconsin:

The mandates issue has been talked to death, but this ad raises another difference between Clinton and Obama -- the fact that her plan includes measures aimed at directly targeting issues in the housing market. Specifically:

Senator Clinton is the only candidate with a comprehensive plan to keep families in their homes and keep the housing crisis from dragging down the economy. More than 2 million foreclosure notices went out last year, devastating families and communities. The foreclosure crisis is also contributing to the decline in home prices which has already cost families an estimated $1.3 trillion. Many experts believe the worst is yet to come. To stem this crisis, Senator Clinton has called for a 90-day moratorium on subprime foreclosures and an automatic rate freeze on subprime mortgages of at least five years or until servicers have converted the unworkable mortgages into loans families can afford. In addition, Senator Clinton proposed to temporarily empower state housing financing agencies to help families refinance unworkable mortgages and temporarily increasing the portfolio caps at Fannie Mae and Freddie Mac, and enabling them to purchase larger loans in high-cost areas. These steps would immediately increase the availability of mortgages for responsible borrowers.

Now one thing to note about this is that a bit contrary to campaign stereotypes, if you take this literally it betrays a certain naiveté about the way Washington works. Were a president to submit a stimulus plan with these kind of provisions in it to congress, it'd be bad news. You'd end up delaying legislative action on the overall package, and delays are a big problem with fiscal stimulus. You'd also open the door to all kinds of not-strictly-stimulus measures that various members of congress want to tack on. What Barack Obama proposed -- a much cleaner, more streamlined stimulus package that really just focuses on juicing short-term aggregate demand -- is a much better idea.

But that's if you take it literally. Things being what they are, both campaigns stimulus plans were really just smoke and mirrors, with Obama signaling that he can play grown-up technocrat and Clinton signaling that she's got a solution for every problem in her swiss army knife-like arsenal of policy measures. And while it's probably not a good idea to link the foreclosure freeze proposal to a stimulus package per se the underlying idea does seem like a pretty good one. As I wrote in my article on foreclosures there are a lot of neighborhood externalities associated with foreclosures, so it's really worth taking action to minimize them.

Comments

Obama offers a speech. Hillary offers a solution.

Your choice.

Posted by ken | February 13, 2008 2:57 PM

Interest rates are still low. Anyone who is a suitable for a mortgage can refinance out of adjustables. The real problem is that people paid to much of homes and can't handle the payments even if they refinance to market rates. Sorry if people got in over their heads, but there are legions of home buyers who were closed out of the overheated market who will be able to buy in when prices fall back to earth due to a rise in foreclosures.

Posted by Helter | February 13, 2008 3:10 PM

Matt,

You're really going to make that your final answer are you?

"Were a president to submit a stimulus plan with these kind of provisions in it to congress, it'd be bad news."

So implicitly Washington politics is going to remain Washington politics, which means Obama's whole big tent pitch is just so much fluff.

Frankly I'll take a president like Hillary who has a plan and has staked her ground from day 1 to fight for that plan v a guy who expects from day 1 to have the other side meet him half way.

And isn't the Obama approach of outlining the prinicples without any details EXACTLY the way Bush Jr claims he rules. And oh hasn't that worked out well for all of us.

Posted by patience | February 13, 2008 3:11 PM

One other interesting tidbit: Penn flatly put a hard number on where the delegate count would stand after the big contests on March 4th: He said that she would be within 25 delegates of Obama.

--TPM Report on Hillary Conference Call today, Wednesday 13 FEB 2008.
__________________________________________________

My comment: those of us who have done the math started reaching Sunday night the same conclusion that emerged from both Chuck Todd last night, and, from the Obama campaign this AM. She's not going to be anywhere near 25 PDs (pledged delegates) behind Obama after 04 March unless she wins HUGE, as in 1-2 standard deviations in percentage terms from anything we've seen so far this primary season. Hillary would have to win OH and TX the way Obama won DC last night. We'll never see anything like that from either of them again.

Everyone has a vested interest in maintaining the idea that "this thing is far from over."

Saying that Hillary still has a chance is like owning cheap call options at a way out of the money strike that expires in 3 weeks, and saying, "yeah the stock could move 70% from here if someone buys us out over the next 15 trading days"

This is all very entertaining.

Posted by Gregor | February 13, 2008 3:15 PM

Look, I know people don't want to hear this, but measures delaying foreclosure aren't a good idea. They don't help the homeowner. Most of them will end up right back where they are, because their problem is that they paid more for a house than they can afford. They can't afford amortizing payments at any interest rate. So, delaying measures serve only to get them to drop more money trying to save their house when, in the long run, that's impossible. For a lot of these people, a quick foreclosure is their best option.

This measure is actually designed to save the lenders, not the borrowers. Right now, their foreclosure departments are choked, and can't process things fast enough. It is also the case that there are so many foreclosed homes coming back on the market that they are driving the price of homes down. (This is, in fact, a good thing, despite what some people will tell you.) Anything that allows them to keep collecting from homeowners for a while, and delaying the foreclosure helps them out.

There's some real tragedy in the housing mess, but that's a sunk cost. It's going to happen, regardless of policy. Far better would be to relax the bankruptcy laws, and come up with programs to help people once they have been foreclosed upon.

Posted by J. Michael Neal | February 13, 2008 3:16 PM

I'm really, really scared of a presidential candidate who thinks the president can or should "freeze" foreclosures or interest rates, as Hillary mentioned at the Hollywood debate. That can't be economic ignorance -- she has to know better. Right?

Posted by too many steves | February 13, 2008 3:18 PM

well, yes, there are negative externalities associated with foreclosures, and, yes, there are reasons that lenders as well as borrowers would want to limit the number of foreclosures.

but that doesn't actually get to the conclusion.

it's only worth taking steps to minimize them if the steps taken are worth taking, all things considered.

the options put forward by the Democrats don't meet that criteria. the freeze/conversion idea simply means that there will never ever be a subprime market again, and that there is additional risk in the regular market. the bankruptcy idea advocated by obama accomplishes the same thing--it increases risk to the lenders. risk will be paid for, not for those who have borrowed, but by those who want to borrow in the future. so, no, it won't be worth doing, and, no, it won't "increase the availability of mortgages." to the contrary.

Posted by Thomas | February 13, 2008 3:24 PM

the options put forward by the Democrats don't meet that criteria. the freeze/conversion idea simply means that there will never ever be a subprime market again, and that there is additional risk in the regular market. the bankruptcy idea advocated by obama accomplishes the same thing--it increases risk to the lenders. risk will be paid for, not for those who have borrowed, but by those who want to borrow in the future. so, no, it won't be worth doing, and, no, it won't "increase the availability of mortgages." to the contrary.

Fine. I think that you are wrong that it will kill the subprime market altogether. However, it will make the subprime market, along with the whole mortgage industry, less aggressive. That's a feature, not a bug.

Yes, there were a lot of stupid homebuyers, who bought more house than they can afford. For every single one of them, there's a stupid mortgage lender that took the other side of the deal. They made loans they never should have made. They not only should pay a steep price for that, but, if they don't, it will be a sign that the market is hopelessly broken.

Let it be a lesson to them: If you loan people more money than they can afford to pay back, you're going to get stuck with a lot of REOs, and a lot of your customers are going to go bankrupt on you. So, don't be so damned stupid.

Posted by J. Michael Neal | February 13, 2008 3:33 PM

I am particularly interested in Hillary's reasoning for the government interfering in contracts between private individuals. Before she advertises the plan, she should have to give us her basis for the authority for imposing it.

Second, I wonder what her plan will be when every single lender in the industry flees residential lending (why earn revenue at a frozen rate when you can earn more in the commercial field)? So,. sure, the people in trouble will be able to stay in their homes, but what about the rest of us who still needs loans to buy our homes?

What a stupid plan.

Posted by Jacek | February 13, 2008 3:33 PM

"As I wrote in my article on foreclosures there are a lot of neighborhood externalities associated with foreclosures, so it's really worth taking action to minimize them."

Matt, are you actually saying these words? Are you that dense when it comes to economics? As another poster has noted, many of these foreclosures HAVE TO HAPPEN no matter what, because the borrowers can't afford the payments AT ALL. Delaying things, and keeping them in their homes, amounts to keeping a bunch of bad loans on the books. In response, the banks will simply jack up rates on everyone else, providing substantial long-term drag on the economy. Yes, foreclosures hurt neighborhoods. Yes, there will be substantial short to medium term pain. But that's inevitable, at this point. Adding a major policy error--foreclosure freezes--onto a previous policy error--not policing the lending markets--is pure idiocy. How will it help neighborhoods to keep a bunch of "frozen foreclosure" homes around in a kind of limbo? It is far healthier for everyone if the system is allowed to clean itself out, or we'll all suffer a lot more pain over a much longer time frame.

Posted by Claudius | February 13, 2008 3:33 PM

Lenders stand to lose less by negotiating refi deals with borrowers, rather than foreclosing, so no need to impose a government solution. Both parties have sufficient incentive.

And, really, what these other fine folks said here about the pyrrhic accomplishment of keeping people a few days/weeks/months/years longer in homes they simply cannot afford.

Posted by Jamey | February 13, 2008 3:37 PM

It might interest the ignorant Obamabots here that Sect of Treasury Paulson yesterday endorsed Clintons' idea to have a moratorium on foreclosures and a five year rate freeze on ARM rate resets.

THAT IS HOW BIG A PROBLEM THIS CAN BECOME IF LEFT UNCHECKED.

Now Paulson did not credit Clinton with the idea but we all know that she was the wonk who first proposed the idea.

If anything is to be done to head off the looming economic disaster it will require, at a minimum, what Hillary Clinton has proposed. Even that may not, in the end, be enough.

Posted by ken | February 13, 2008 3:38 PM

Ken,

Hillary may have been the first politician to bring up the idea, but she is not the first "wonk" to do so. Do you read the financial papers? Trust me, Paulson doesn't give two-shits about what Hillary thinks.

Posted by David | February 13, 2008 3:48 PM

Paulson yesterday endorsed Clintons' idea

Whoo HOOO!! Clinton agrees with Bush/Bush agrees with Clinton! What an endorsement! Put that in an ad and spend millions on it, it's a sure fire winner for Clinton.

Posted by zaleriana | February 13, 2008 3:58 PM

So the housing bubble finally pops, and Cliton's response is that we need to reinflate it by doing everything in in the government's power to prop up prices. Great, cause I was hoping to buy a house at some point in the next few years once the prices finished their correction. Guess I should have gone out and got myself a nice teaser rate to get frozen in with the idiots who got us into this mess.

If you think "Throw money and regulations at the problem with out any regard for understanding it." is the best approach, vote Hillary.

Posted by MattXIV | February 13, 2008 4:34 PM

David, I traded morgage securities with institutional customers globally for over ten years. Granted it has been several years since I left the industry but I pay attention to what is happening. The industry needs someone of Hillary Clinton's stature to force through a solution to this problem. Left alone this problem will not resolve itself without global repercussions that none of us should be willing to accept.

If Paulson takes up the cause, as it looks like he is finally willing to do, then good for him. Hillary does need to get credit for it but we all know that she first gave the idea credibility.

The point is that Clinton has a solution. Obama has a slogan.

Posted by ken | February 13, 2008 4:37 PM

"The mandates issue has been talked to death"

First, the ad doesn't talk about mandates, it talks about true universal health care, something King Obama doesn't offer. That you turn this into a mandates issue is your way of framing the issue.

Second, the fact that the "mandates" issue has received some attention in blogs and one or two debates does not mean it has been "talked to death." Most people don't know that King Obama does not offer universal health care, despite his claims to the contrary -- especially in Wisconsin.

You're being biased here Matt, a little more grownupishness would be appreciated.

Posted by Israel | February 13, 2008 4:54 PM

Since neither Obama nor Clinton get to do anything at all about the mortgage crisis for at least another year, I hope nobody's holding their breath for one of their "plans" to bring them some relief.

Posted by SqueakyRat | February 13, 2008 5:10 PM

Wow, the Fed starts cutting interest rates and Clinton wants to freeze them at current levels. Brilliant!

Posted by Patrick | February 13, 2008 5:22 PM

David, I traded morgage securities with institutional customers globally for over ten years. Granted it has been several years since I left the industry but I pay attention to what is happening. The industry needs someone of Hillary Clinton's stature to force through a solution to this problem. Left alone this problem will not resolve itself without global repercussions that none of us should be willing to accept.

Ah hah. So, Ken's concern is not with the borrowers at all. It isn't even with the lenders, per se, but rather with those that bought the securities from those lenders.

Ken, are you familiar with the concept of moral hazard? Again, like the lenders, a lot of people got stupid, and bought idiotic securities. Tough noogies. All you are trying to do is prop up banks that are really bust. Look at how well that approach has worked for Japan.

The proper way for the government to intervene here is to admit that it's going to take a lot of money, direct it to the FDIC, and when banks go bust, take them over, cover the insured deposits, and sell off the assets. Basically, we need a super sized version of the Resolution Trust Corporation.

That does mean that a lot of investors are going to get squat. My advice is, don't buy securities that you don't understand.In particular, don't buy securities that rely upon house prices going up forever.

Posted by J. Michael Neal | February 13, 2008 6:02 PM

Wow, the Fed starts cutting interest rates and Clinton wants to freeze them at current levels. Brilliant!

Have you seen what's happened to interest rate spreads lately? Let's not confuse the FFR for the rate that other people need to pay on their mortgages.

Posted by J. Michael Neal | February 13, 2008 6:06 PM

We can either bite the bullet and have a recession now, or bail out all the absurd lending now and have a depression down the road.

Posted by Steve Sailer | February 13, 2008 6:50 PM

By the way, a recession now would be perfect timing for the Democrats, both for this election and for the next.

Posted by Steve Sailer | February 13, 2008 6:53 PM

Freezing interest rates for 5 years is a HORRIBLE idea. Only the fact that it would probably not pass is keeping people from looking at it closer. But since when does the government reward certain groups by freezing their interest rates for 5 years? If you can't afford the house that you bought, under the terms you bought it, then either refinance, sell, or walk away.

And this freeze on foreclosures is equally ridiculous. If people aren't paying for their homes, they lose the house. Let more homes go on the market, let prices fall, and hopefully houses will be affordable for regular folks again. I remember in mid-2006, you could not find a house in Los Angeles for less than $499,000. Even in South Central, Inglewood and Compton! Hollywood, a generally working class area, started in the $700k range. Who the hell can afford this stuff?

As we are discovering, nobody. So prices have to fall, and any plan by Hillary to somehow stem the tide would be disastrous for the broader home-buying public.

Posted by Sage | February 13, 2008 7:13 PM

"Clinton has a solution. Obama has a slogan."

Clinton's plan has numbers like "5 year" freeze and "90 day moratiorium." These are suspiciously round numbers and are probably designed not to be serious policy solutions but to linger in the minds of voters. And Obama has proposed solutions, specifically in the form of direct assistance to borrowers under certain conditions. As MY notes, this is more likely to be effective than a more convoluted piece of single legislation, which is why in 8 years, HIllary's done less in the Senate than Obama. Not that she needs further help ending her own candidacy, but it's also the case that going negative plays right into Obama's hands.

Oh, and congrats to ken for being such a BSD.

Posted by David B. | February 13, 2008 7:23 PM

"Clinton has a solution. Obama has a slogan."

Clinton's plan has numbers like "5 year" freeze and "90 day moratiorium." These are suspiciously round and are probably designed not to be serious policy solutions but to linger in the minds of voters. Not to mention being stunningly ill-advised. And Obama HAS proposed solutions, specifically in the form of direct assistance to borrowers under certain conditions. You can see why in 7 years, HIllary's done less in the Senate than Obama did in 3. Not that she needs further help ending her own candidacy, but it's also the case that going negative plays right into Obama's hands.

Oh, and congrats to ken for being such a BSD.

Posted by David B. | February 13, 2008 7:25 PM

Wow, Ken gets all the Clinton talking points before anyone else does....she's rolling out the "I have a solution" meme tomorrow. Nice shill job, Ken! Hope they're paying you well....

Posted by C.Michol | February 13, 2008 9:51 PM

Clinton's plan is brain dead. And since Matt knows nothing about economics, naturally he likes it.

"Senator Clinton is the only candidate with a comprehensive plan to keep families in their homes and keep the housing crisis from dragging down the economy."

She has exactly ZERO chance of doing the latter since it will be well under way long before she becomes President - assuming she even becomes President. So this is stupid on the face of it.

"The foreclosure crisis is also contributing to the decline in home prices which has already cost families an estimated $1.3 trillion."

The decline is because they were overpriced to begin with. Forestalling that decline is an intervention in the market which is unsustainable.

"Many experts believe the worst is yet to come."

Duh! No shit, Dick Tracy.

"To stem this crisis, Senator Clinton has called for a 90-day moratorium on subprime foreclosures and an automatic rate freeze on subprime mortgages of at least five years or until servicers have converted the unworkable mortgages into loans families can afford."

And exactly how will that be done?

A rate freeze for five years? WTF? The entire US economy is going to freeze itself for five years on her say-so?

"In addition, Senator Clinton proposed to temporarily empower state housing financing agencies to help families refinance unworkable mortgages and temporarily increasing the portfolio caps at Fannie Mae and Freddie Mac, and enabling them to purchase larger loans in high-cost areas."

Right - create more easy credit where the problem is already too much former easy credit, thus allowing people to get in over their heads.

Brain dead. The woman is clueless and so are her economic advisers. And Matt.

Posted by Richard Steven Hack | February 14, 2008 1:57 AM