I’ve been trying hard to understand John McCain’s mortgage proposal. Here are my two favorite elements: 1) that all troubled but heretofore creditworthy mortgage holders would be eligible to participate; and 2) that once the government purchased their mortgage it would then lend the money again, pegged to the “new” value and, importantly, at a 30-year-fixed rate of 5%.
Let’s take these one at a time. McCain’s definition of creditworthiness seems to be that the borrower didn’t falsify information at the time of the initial loan and that they “provided a down payment.” This is silly in the extreme. It’s plainly obvious that all sorts of people couldn’t afford the homes they bought, whether or not they told the truth and whether or not they had good credit. Simply having made a down payment isn’t particularly meaningful, either. The size of the down payment and the validity of the appraisal are far more relevant.
As for McCain boldly suggesting that 10 million “homeowners” (I use quotes because these poor souls are renters, not owners) should receive a fixed-rate mortgage at 5%, about a full percentage point below the current rates, I repeat my thought when various politicians and policymakers floated a similar idea last year: I want my mortgage rate frozen too. It’d be lovely to get a below-market-rate mortgage, and doesn’t McCain think the folks who acted prudently when they bought their homes would like a break too? I know I would.
I read an interesting quote in The Wall Street Journal earlier in the week, back when Americans had lost only $2 trillion in their retirement plans in the previous 15 months. The article ended with the following suggestion:
Teresa Ghilarducci, a professor of economic policy at the New School for Social Research in New York, said Congress should let workers trade 401(k) assets to the government – perhaps valued at mid-August prices – for a retirement account composed of government bonds. She called the 401(k) a “failed experiment.”
My first reaction to this was, ‘What a ridiculous suggestion.’ Re-pricing bad decisions being guaranteed valuations from another time and place? Who wouldn’t take that offer and imagine how much it would cost the government? No way. Then I thought for a moment about all the crazy things the government is doing, and suddenly this idea didn’t quite so ludicrous.
The Journal had comments today from Sequoia Capital and Benchmark Capital, two prominent VC firms, advising their portfolio companies to hunker down. Ron Conway, a successful and well connected ‘angel’ investor, had this advice earlier in the week for companies in which he has invested:
The message is simple. Raising capital will be much more difficult now.You should lower your “burn rate” to raise at least 3-6 months or more of funding via cost reductions, even if it means staff reductions and reduced marketing and G&A expenses. This is the equivalent to “raising an internal round” through cost reductions to buy you more time until you need to raise money again; hopefully when fund raising is more feasible. Letting go of staff is hard and often gut wrenching. A re-evaluation of timelines and re-focus on milestones with the eye of doing more with less will allow you to live many more days, and the name of the game in this environment in some respects is survival–survival until conditions change.
And finally, an e-mail from Fortune Managing Editor Andy Serwer, who happened to be in San Francisco at the beginning of the week: “New Wachovia branch .. on the corner of Geary and Market …Big sign in the window: ‘Coming soon!’ … Actually, not.”