The Second Debate

I don't know who won the second presidential debate, and I don't care. "Winning" a debate is like two football teams squaring off, and running some plays, but without actually using a football, and never crossing the goal line or kicking a field goal - then letting the fans judge subjectively which team they think won, and taking a vote.

You know how that game would work: the fans of Team A would say their team won; Team B's fans would say Team B won. Whichever team had the most fans respond to the poll would win. As I posted once before, those predisposed ...

Anyway, I did read the transcript. So I missed out on the body language, the eye contact, and Barack Obama's winning smile. (Chris Matthews was fawning over Obama's smile last night, contrasting to McCain's smile, which apparently he doesn't like as well as Obama's. I swear, the way Matthews fawns over other guys worries me.)

And reading the transcript, I've come to the conclusion that neither of these guys should be our next president.

Here's the rationale: we are in an economic firestorm of near-Biblical proportions, and if it's handled improperly, it could spell doom for the US economy. The very fact that it's being handled by government at all pegs the odds at more than 50% that it'll be handled improperly.

And neither of these guys' plans would do anything but further damage.

(Oh, I know, it's rare that a politician delivers on his promised plans. But given the stakes at this table, I don't want to play the odds that they'll abandon their frighteningly bad ideas in favor of something that actually makes sense.)

Here's what's on Obama's flip chart:

1. Cut taxes for the middle class, which he defines as anyone making less than $200,000 a year.
2. Get back the $440,000 that AIG spent on their corporate boondoggle after they got an $85 billion government bailout (makes sense, until you realize that the taxpayers now own AIG, so we'd be paying ourselves back).
3. Provide help to homeowners so they can stay in their homes (yes, including the ones that lied about their incomes, put no money down, or can't afford their mortgage payment whether it's $2,000 a month or $1,000, presumably).
4. Help state and local governments set up road projects and bridge projects to keep people in their jobs (if those people are already in state and local government jobs and there are no road projects or bridge projects to keep them busy, no wonder state and local governments are bleeding red ink).
5. Fix our health care system.
6. Fix our energy system.
7. Raise taxes only for those who make more than $250,000 a year.

Noble concepts, all. But you do the math. You're going to have to tax those people at a rate of, oh, say about 100% to pay for all that stuff. Obama acknowledged that he was proposing some fairly healthy spending boosts - $860 billion, according to McCain - but that he planned to cut more than he was proposing to spend, so that he'd be a net spending-cutter.

But he failed to name one thing he'd cut.

On to McCain's slate:

1. Buy up all the bad mortgages in the country, which he says can be done for $300 billion, which he would divert out of the recent bailout. He would then refinance those people into mortgages with balances equal to the value of the home.

Let's spend a little more time with this one.

The US mortgage market is $11 trillion, and the mortgage delinquency rate is at 6.41% - a record, by the way. So the total of all "bad mortgages" in this country is $705 billion. Home values are down nationwide about 18%, so you'd assume that would be the hickey the taxpayer would take.

But 18% of $705 billion is $126 billion, not $300 billion. Maybe he's assuming that more people will go delinquent on their homes - which they will; heck, in fact, now that he's announced this plan, everybody who's upside-down in their homes should immediately stop making their mortgage payments. Maybe he's assuming home prices will decline further, which they will - approximately 10-15% according to most pundits.

Or maybe he's assuming that anything the government does will wind up costing more than twice what it actually should. Which is also accurate, unfortunately.

One thing he's ignoring is the unconscionable moral hazard of rewarding financially irresponsible behavior. Another thing he's ignoring is that most mortgages are delinquent because the borrower can't make the monthly payment whether it's $2,000 a month or $1,000.

And a final thing he's ignoring is that he won't have a chance to divert money from the bailout, because by the time the next president is inaugurated, Paulson will have spent it. At least once.

2. Either cut or freeze everybody's taxes - I'm not sure which.

Not a very lengthy list, compared to Obama's. But since Obama's list is pretty much all outflow and little inflow, that may be a good thing. But only relatively. McCain's ideas would also put us further in the red than we already are. And today we learned that the deficit for fiscal 2008 is a new record - woo-hoo!

There were other silly moments, like when McCain said Fannie and Freddie started the whole credit crisis. They contributed mightily, but they did not start it, as any reader of this space should know by now. Or when Obama said that when Bush took office, the national debt was $5 trillion, and now it's more than $10 trillion, then said it had "almost doubled." Last I checked, "more than ten" is MORE than double 5, not "almost double."

But besides neither of them having the first foggy clue as to what actually caused the crisis we're in, or what to do about it, they also provided another scare.

When asked who they'd appoint as Treasury Secretary, they both named Warren Buffett. McCain also named former e-Bay CEO Meg Whitman. Neither would be a good choice.

The Oracle from Omaha is a very smart guy, a very savvy investor. But he lets his politics cloud his judgment. He's a big-government guy. He apparently doesn't believe in free markets.

Because he was in favor of the bailout. And that's the cardinal sin with me these days.

I can see not going back to Wall Street for the next Treasury chief, given the experience with Paulson and his bailout for his cronies. Although Bob Rubin wasn't bad.

But I'd pick somebody tough, old-school, hardscrabble, somebody who understands free markets and doesn't think it's the government's job to prop up the price of every bubbly over-inflated asset that exists. I don't know who that is. Me, but I wouldn't take the job. Maybe Ron Paul.

And I also believe Bernanke's got to go. So does none other than NYU economist Nouriel Roubini, who's called this thing with terrifying accuracy from the get-go. My pick would be either Roubini himself, or Paul Volcker.

But the sad truth is, it's easier for me to pick who the next Fed Chair or Treasury Secretary should be, than who the next president should be. But then, in the case of the latter decision, my options are tragically limited.

A final thought. Are we surprised that the AIG execs took their bailout money and went on a junket? If we are, shame on us. Remember the RTC, the agency that was created to clean up the S&L crisis (yes, the same agency that exacerbated it and doubled its cost)? The local office of the RTC, it was reported in the Kansas City Star, had more than $26,000 worth of original art hanging in it, that the regional director had bought. And it wasn't a huge office suite. The Star quipped, "He put the 'art' in 'RTC.'"

He said he did it to boost morale, because the job of cleaning up sick thrifts was so depressing.

I worked for one of those thrifts, only it wasn't even sick when the OTS took "preemptive" action and took it over. But it sure got sick fast, and wound up costing the taxpayers money, due to the RTC's mismanagement of the unwinding of the portfolio while it was in "conservatorship."

Don't believe me? Sour grapes on my part? How about this: on one conference call, the guy the RTC put in charge of the institution - at the time the 16th-largest S&L in the country - we were discussing some zero-coupon bonds. We kept referring to them as "the zeroes." About a half hour into the call, the guy asks:

"What's the coupon on these, anyway?"

I didn't notice any bad morale among those guys. Especially when they shut down all of our local office space except their own little suite, and shipped us all out on a 90-mile daily round-trip commute. Or when they left at noon every Friday for the weekend.

I walked away from that place after four years, my retirement funds - virtually entirely in a company stock plan, which the RTC quit funding when they stepped in. After four years' work, I walked away with about $400 saved for retirement.

I cashed out, took the tax hit and the penalty, and drank it.

You want bad morale? I got yer bad morale right here, sport.

Oh, as for AIG. How did our government respond to the news that its execs spend $440,000 of their bailout money on a boondoggle retreat?

Tonight, the Fed announced it would provide another $37 billion in funding, on top of the $85 billion bailout.

And the government actually tried to tell us we'd make money on the AIG deal.

As Charlie Brown used to say (banging his head into a tree, as I'm going to go outside and do right now), "I can't stand it."