John McCain is apparently not afraid to say what many of us are really thinking about the mortgage crisis: the two sets of people most to blame are the lenders who lent the money to people who couldn’t pay it back and the lenders who took those loans:

Lenders ended up violating the basic rule of banking: don’t lend people money who can’t pay it back.

The past decade witnessed the largest increase in home ownership in the past 50 years. Home ownership is part of the American dream, and we want as many Americans as possible to be able to afford their own home. But in the process of a huge, and largely positive, upturn in home construction and ownership, a housing bubble was created.

A bubble occurs when prices are driven up too quickly, speculators move into markets, and these players begin to suspend the normal rules of risk and assume that prices can only move up – but never down. We’ve seen this kind of bubble before – in the late 1990s, we had the technology bubble, when money poured into technology stocks and people assumed that those stock values would rise indefinitely. Between 2001 and 2006, housing prices rose by nearly 15 percent every year. The normal market forces of people buying and selling their homes were overwhelmed by rampant speculation. Our system of market checks and balances did not correct this until the bubble burst.

A sustained period of rising home prices made many home lenders complacent, giving them a false sense of security and causing them to lower their lending standards. They stopped asking basic questions of their borrowers like “can you afford this home? Can you put a reasonable amount of money down?” Lenders ended up violating the basic rule of banking: don’t lend people money who can’t pay it back. Some Americans bought homes they couldn’t afford, betting that rising prices would make it easier to refinance later at more affordable rates. There are 80 million family homes in America and those homeowners are now facing the reality that the bubble has burst and prices go down as well as up.

I have always been 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. Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy.

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. I will consider any and all proposals based on their cost and benefits. In this crisis, as in all I may face in the future, I will not allow dogma to override common sense.

When we commit taxpayer dollars as assistance, it should be accompanied by reforms that ensure that we never face this problem again. Central to those reforms should be transparency and accountability.

Apparently, Barack Obama doesn’t like this truth-telling, although he disguises in it in the robes of a critique of the supposed lack of concrete proposals from McCain:

“John McCain has admitted he doesn’t understand the economy as well as he should. Yesterday he proved it in a speech he gave on the housing crisis.” Obama told a town hall audience Wednesday in Greensboro, North Carolina.

“According to John McCain he said the best way for us to address the fact that millions of Americans are losing their homes is to just sit back and watch it happen. In his entire speech yesterday he offered not one policy, not one idea, not one bit of relief for the nearly thirty five thousand north Carolinians who were forced to foreclose on their dream in the last few months. Not one, not one single idea or a single policy prescription.”

John McCain’s campaign pushed right back on this:

John McCain 2008 spokesman Tucker Bounds today issued the following statement on Barack Obama’s old-style political attacks today:

“Senator Obama’s blatant mischaracterizations aren’t the new politics he’s promised America, they’re the old attack and smear tactics that Americans are tired of.

“Barack Obama’s diagnosis for our housing market is clearly that Barack Obama knows best — raise taxes on hardworking Americans and give government a prescription to spend.

“John McCain has called for an immediate and balanced approach to provide transparency and accountability in an effort to help homeowners who are hurting, while Barack Obama has made a $10 billion election-year promise that is sure to raise taxes and handcuff an already struggling economy.”

Good that they came back to effectively and challenged the allegation head-on, but you can’t help but feel that they should also have capitalized on McCain’s straight-talking approach to the whole issue too. If he won’t be honest about it, who will?

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2 Responses to “McCain speaks truth to, well, us”

  1. Mike Harmon Says:

    I came across your blog on Technorati. Nice site layout. I will stop by and read more soon.

    Mike Harmon

  2. John Voymas Says:

    Although I agree that mortgage lenders and those in the financial industry who purchased the prettied-up sub-prime loans share significant responsibility for the latest crisis, I am surprised that someone who states that they believe in personal responsibility does not hold accountable the greedy borrowers themselves.

    Yes, I say greedy because they wanted something they could not reasonably afford and they speculated no differently than the banking industry or the so-called ‘investors’. I do not mean just the non-homeowners but those who were purchasing homes for themselves. They also were speculating because they wanted to believe the lie propagated by the real estate industry since the late 1960’s that your home is an investment (not simply the basic need of shelter in which will earn equity as you responsibly make your payments).

    My wife and I do not currently own a home because we did not have the responsible down payment and cash flow to afford one. Now we are being asked to not only bail out the financial services industry but also the greedy homeowners who bought what they could not afford based on the speculative mind-set quoted in the blog.

    So my wife and I are expected to pay for the greed and stupidity and self-desired head-in-the-virtual-sand of those homeowners who are now facing foreclosure. So because we were responsible in our housing and others were not, we must now pay for them – and further delay being able to responsibly buy ourselves a home!

    My parents bought their first home in 1959 for $14,500. They sold that home five years later for $14,900 – a whopping $400 profit (from which to pay the real estate commission). They then bought a larger home to serve the needs of our now larger family. And that is how housing worked ‘way back when’ people understood it to be a basic human need, not an ‘investment’.

    So please put the responsibility EVERYWHERE it belongs and stop supporting those who cry ‘Alas, poor me’ – for they put themselves in that position.