McCain Housing Plan a Game Changer?

It might be too late now to alter the direction of the election.

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Imagine if John McCain had opposed the $700 billion Paulson plan last month and had instead come out swinging with the housing plan—have Treasury buy bad mortgages and issue new ones at the reduced home value—that he announced last night at the presidential debate with Barack Obama, along with a call for a suspension of mark-to-market accounting.

It would arguably have been the more "conservative move" in that it would not seem to cost nearly as much—$300 billion says Team McCain—as the Paulson plan does. McCain would have come out as a hero to homeowners, taxpayers, and Main Street. (Note that several conservative economists have been encouraging direct homeowners help in recent days.) And if he had combined his housing plan with an explainable middle-class tax plan—zero cap gains rate, expanded child credit, lower marginal income tax rates—well, who knows? You know? Housing, taxes, and energy makes for a pretty voter-friendly platform.

Would such a housing plan work? Well, as economist Ed Yardeni calculates, the total value of all delinquent subprime mortgages is just $225 billion or so. Such a fuss! Buy them and move on, Yardeni says. And that would still leave plenty of money left over to inject capital into weak banks if necessary by taking significant equity stakes. (Expect this to happen anyway.)