McCain Warns Against Hasty Mortgage Bailout

Drawing a sharp distinction with the Democratic presidential candidates, Senator John McCain, warned Tuesday against hasty government action to solve the mortgage crisis, saying “it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.”

Sen. John McCain spoke at a small business owners round table on Tuesday in Santa Ana, Calif.

The latest political news from around the nation. Join the discussion.

In an address focusing on domestic issues following his visit to the Middle East, Mr. McCain, the presumptive Republican nominee, did not propose any government bailout.

“Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy,” Mr. McCain said, speaking before a business group in Santa Ana, Calif.

His comments came a day after Senator Hillary Rodham Clinton called for aggressive federal intervention to help troubled homeowners, including directing $30 billion to states to help homeowners at risk of foreclosure. Mrs. Clinton’s Democratic opponent, Senator Barack Obama, has similarly called for active federal intervention, including a $10 billion relief package to prevent foreclosures.

As the mortgage crisis has rippled through the economy, it has thrust itself to the forefront of the presidential race. But Mr. McCain’s remarks on Tuesday represented a stark tonal shift from the increasing calls for helping homeowners, as he faulted not only borrowers who engaged in risky lending, but suggested that some homeowners engaged in dangerous financial practices.

“Some Americans bought homes they couldn’t afford, betting that rising prices would make it easier to refinance later at more affordable rates,” he said.

Mr. McCain argued that even during the ongoing crisis, the vast majority of mortgage holders continued to make their payments.

“Of those 80 million homeowners, only 55 million have a mortgage at all, and 51 million homeowners are doing what is necessary — working a second job, skipping a vacation and managing their budgets to make their payments on time,” he said. “That leaves us with a puzzling situation: how could 4 million mortgages cause this much trouble for us all?”

Mr. McCain split the blame between the rising housing bubble and the use of confusing and complex financial arrangements, which he said were badly understood even by financial managers. He said initial losses, coupled with the lack of transparency, has caused a “crisis of confidence in the markets.”

“Capital markets work best when there is both accountability and transparency,” he said. “In the case of our current crisis, both were lacking.”

Any government assistance must be accompanied by measures to ensure the problems are not repeated, Mr. McCain said. He said homeowners and lenders must be clear from the outset about the terms and obligations of any mortgage.

“We must have greater transparency in the lending process so that every borrower knows exactly what he is agreeing to and where every lender is required to meet the highest standards of ethical behavior,” he said.

Mr. McCain did not rule out a bailout, instead saying any such aid should be temporary and “no assistance should be given to speculators.”

“Any assistance for borrowers should be focused solely on homeowners, not people who bought houses for speculative purposes, to rent or as second homes,” he said.

Democrats criticized Mr. McCain’s approach, arguing that it would not do enough to address the financial problems facing Americans.

“Instead of offering a concrete plan to address the crisis at all levels, McCain promised to take the same hands off approach that President Bush used to lead us into this crisis,” Howard Dean, the Democratic National Committee chairman, said in a statement. In his speech, Mr. McCain did not provide specifics about any immediate plans to deal with the crisis, saying he was “prepared to examine new proposals and evaluate them based on these principals.”

He also called for a meeting of the nation’s top mortgage lenders, asking them to pledge support for customers and homeowners.

“Working together, they should pledge to provide maximum support and help to their cash-strapped but credit-worthy customers,” he said. “They should pledge to do everything possible to keep families in their homes and businesses growing.”

Tag Cloud

External Information

Additional Information

Where Am I?