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John McCain’s Unworkable Plan to Deregulate and Insure Our Way Out of the Crisis

Dave Hoffman

Dave Hoffman is a James E. Beasley Professor of Law at Temple Law School. He specializes in law and psychology, contracts, and quantitative analysis of civil procedure. He currently teaches contracts, civil procedure, corporations, and law and economics.

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8 Responses

  1. JP says:

    This is way out of my depth, and I’m someone who generally supports a repeal of the capital gains tax. That said, wouldn’t repealing it now have terrible consequences? In addition to everyone selling stocks at a loss, wouldn’t eliminating the lock-in effect cause anyone with unrealized gains to sell as well?

  2. JP says:

    Also, I think referring to this as McCain’s plan is pretty close to partisan dishonesty. You call it “McCain backed” by linking to a story that cites an unidentified source claiming that “McCain vaguely brought up the [House GOP] proposal.” To say the least, your post title is a stretch.

    It appears that McCain is playing all sides, waiting for a popular coalition to emerge. (In my opinion this is worse than backing an imperfect proposal, and clearly makes his trip to Washington as a political stunt rather than a demonstration of leadership.)

    I greatly appreciate this blog, and particularly analysis like this. It just becomes harder to read and less persuasive when seemingly used to score tenuous political points.

  3. dave hoffman says:

    JP,

    I appreciate your point, but I respectfully disagree that I’m engaged in partisan spin. McCain’s in the room. He’s given the opportunity to endorse the plan -the bailout plan that is the only solution on the table- and instead he mentions that there is a republican alternative. There are confirming press reports that he’d made vaguely positive gestures toward the RSC earlier in the day, and after the conference, he mentioned that not everyone was on board, because of the public-nature of the solution.

    I agree that he’s not coming out and saying that the RSC plan is a good one, but his tacit support gives significant comfort to the RSC, suggesting that they, like he, should put politics first. I appreciate that in ordinary times, offering a nonconstructive plan to show that you don’t believe in big government would be useful – it’s important for the opposition to actually oppose. But clearly this deal isn’t going to happen unless the politicians all heard together (and here I include Obama and the rest of the Dems, who seem not to believe that they can convince the country to take its medicine).

    Under these circumstances, saying that there are two plans on the table, is the same as saying that the second plan is a good one that McCain endorses. It is dangerously risky, ideological, and stupid.

  4. JP says:

    So McCain is not even going so far as to say “that the RSC plan is a good one,” and yet this makes it “John McCain’s Unworkable Plan?”

    Your claim that McCain’s reference to an alternative plan is bad is only true if 1) the Compromise Plan is the best politically feasible alternative in the short term, 2) the Compromise Plan had to be passed quickly (i.e., speed is more important than broad bipartisan support), 3) McCain actually believes both 1 and 2, and 4) McCain’s endorsement of the Compromise Plan would have caused it to have majority support.

    I don’t know whether any of these are true, but I’m skeptical of # 4, at least.

  5. dave hoffman says:

    JP.

    I am convinced of #1 and #2. #3 is unclear, but I don’t know why it matters. I think his stance is more agnostic. He doesn’t care, or care to know, much about the financial crisis except as it effects his political chances. (I think Obama’s in the same boat. It’s human nature.) #4 is right, in my view, except that I don’t think McCain needs to endorse for majority support. Majority support is there, but they won’t pass the bill unless they have overwhelming votes, including enough republicans so that the dems can’t have it hung on them in five weeks. That is, McCain’s active endorsement is necessary for the bill to pass. That, I think, he knows.

  6. JP says:

    Also, why don’t any of your criticisms apply to Obama? Granted, he didn’t “pretend suspend” his campaign, but surely he would have if it would have helped his campaign (e.g., he was behind in the polls, Republicans controlled Congress, etc.) (and for those who protest that Obama is “different,” remind me which candidate reneged on his pledge to accept public funding?).

    Obama was also in the room, and I haven’t seen any report that he endorsed the Compromise Plan. Why come to DC instead of just saying he supports a particular proposal, or any proposal that commands a majority, or that he supports his Party’s congressional leadership?

  7. JP says:

    Thanks Prof. Hoffman,

    McCain’s active endorsement of the Compromise might be necessary, but I’m not sure it’s sufficient. I’m not sure, but I think it’s plausible that the House Republicans would still oppose the Compromise (causing Pelosi, et al, to withdraw support). House Republicans may want McCain in the White House, but more importantly they want to keep themselves in Congress, and the bailouts seem to have stirred up some pretty clear voter hostility.

    Without trying to tell you what you should blog about, I would love to hear your reasons for believing 1 & 2. I think the point of my original comment was simply to express my (unsolicited) opinion as one long-time reader that the policy debates on this blog are generally more edifying than the partisan ones.

  8. Jonathan Lipson says:

    Great post, Dave.

    A few things to fuel the fire.

    First, about $160Bn in short term commercial paper–you know, the stuff that GMAC used to use to finance its business when it had one–is scheduled to turn over next Tuesday. If the banks won’t lend to themselves overnight, I have no idea what they would charge the nation’s best credit risks for short term loans, if they would lend at all. Tuesday, it seems to me, may be D-Day.

    Second, in addition to the points you raise, the Republican proposal appears to be especially hypocritical on executive compensation. While I have real doubts about the value of cutting future compensation–I am happy to give executives an economic incentive to do a good job–the Republican plan, so far as I can tell, says nothing at all about it. So, whereas the modified Paulson proposal would constrain it, this does nothing to address the “greed” about which McCain fulminates. Maybe it’s in there somewhere, and it wasn’t in the news. But if the Republicans really want to at least appear to address the greed that angers mainstreet, this would seem not to do it.

    Third, neither proposal deals with two things that I think are very important. (i) Dealing with the underlying mortgages (whether through adjustment in bankruptcy, government purchase, chaperoned renegotiation, etc); and (ii) where all the money went.

    My overarching concern in this is that the reason a real bailout is needed–and no market mechanism could work–is because lots of the paper (the CDO flavor in particular) is “vapor paper”–it’s really backed by nothing at all. Yet, I am reasonably confident that the investment bankers who floated it took large fees, as did the hedge fund managers who bought it. Getting that money back–through a fraudulent transfer-type mechanism–could go a long way toward the real sort of justice people want when they scream about Wall Street.

    Finally, I too am wary of politics on this. But McCain’s behavior has really been outrageous. According to McCain: Eleven days ago there was no problem at all. Nine days ago we needed only a 9-11 style commission. Eight days ago it was suddenly a crisis–and it was Obama’s fault.

    I have no idea what value McCain added to the process by declaring dramatically that this crisis required him to suspend his campaign, cancel the debate and lead the charge to salvation (only to, uhm, decide that he actually could fly his private jet 90 minutes to Mississippi).

    His presence certainly coincided with the implosion of what a good number of people thought was a deal–troubling though it was, clearly better than proposed alternative.

    Character and judgment are supposed to be his selling points. His behavior on this does not give me great comfort on either score.

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