April 1, 2008

0% Mortgages? Yeah right, McCain!

Last week, presidential hopeful Senator John McCain was in our own County Seat of Santa Ana. And boy did he bring an elephant into the room with his speech about getting the nation out of this housing debacle. Here’s an excerpt of McCain’s speech in Santa Ana (per the Chicago Tribune’s post “Did McCain call for zero-percent mortgage rates?”):

“We should also convene a meeting of the nation’s top mortgage lenders. Working together, they should pledge to provide maximum support and help to their cash-strapped, but credit worthy customers. They should pledge to do everything possible to keep families in their homes and businesses growing. Recall that immediately after September 11, 2001 General Motors stepped in to provide 0 percent financing as part of keeping the economy growing. We need a similar response by the mortgage lenders. They’ve been asking the government to help them out. I’m now calling upon them to help their customers, and their nation out. It’s time to help American families.”

Uh, did he say 0% mortgages? Helloooo…. have you ever noticed what the mortgage industry is all about. Financing a car, like GM did, is not quite the same as financing a house. Cars are the business of GM, financing is a side-business. However, financing is the business of lenders, period. The bottom line, Senator McCain, is that these big lenders were also in a speculative business and do not have the resources to be the patriotic saviors you’re asking them to be.

McCain does not support the government bailing out borrowers or lenders. As noted in the Los Angeles Times, McCain said “he was ‘committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.’” He went on to say (according to the Seattle Times), “‘Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy.’” The Seattle Times article also included a statement from McCain adviser Doug Holtz-Eakin where he says that proposed plans from democratic candidates does not “address why someone is in foreclosure… As harsh as it may sound, that may be an appropriate outcome in some cases.”

Don’t think the democratic candidates took McCain’s proposal sitting down. According to the Seattle Times, Senator Hillary Rodham Clinton said, “He sounds remarkably like Herbert Hoover… I don’t think that’s good economic policy. The government has a number of tools at its disposal.” The Cincinnati Enquirer noted Senator Barack Obama’s response: “Obama accused McCain of being determined ‘to run for George Bush’s third term’ by espousing a plan that ‘amounts to little more than watching this crisis happen.’”

Now, without making this a democratic vs. republican debate (hard not to, I know), what do you think about about these statements. I have to say that while I like the idea that I’m getting a fat rebate check in the mail, I’m a little disappointed that the government is rewarding some irresponsible behavior. We are teaching our generation (and our children’s generation), that it’s okay to screw up, someone else will bail you out. I agree with McCain in some aspects, especially this statement he made (per the Chicago Tribune):

“In our effort to help deserving homeowners, 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. Any assistance must be temporary and must not reward people who were irresponsible at the expense of those who weren’t.”

What do you think will happen? It’s doubtful the mortgage industry is going to step up to help (they too are looking for a handout). And, do you think Obama and Clinton really have any bite behind the bark? Or is it just more of the smoke and mirrors to win the presidential popularity contest?

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