John McCain has delivered a speech detailing how the housing and credit-market crises erupted and what should — and should not — be done about them. “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,” Mr. McCain said last week in California, where some of the most “rampant speculation” in the housing market occurred earlier this decade and where the inevitable foreclosures have now become common. “Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy.”
Worth noting is the fact that “big banks” have already absorbed nearly a quarter-trillion dollars in asset writedowns related to the collapse from the subprime-mortgage market. And hundreds of billions in additional asset writedowns are on the horizon. That seems to be lost amid the liberal furor over the Federal Reserve’s emergency action to prevent the imminent bankruptcy of Bear Stearns from unleashing a systemic tidal wave that might have overwhelmed the financial markets.
“A sustained period of rising home prices made many home lenders complacent,” Mr. McCain rightly noted. “[T]they stopped asking basic questions of their borrowers like: ‘Can you afford this home? Can you put a reasonable amount of money down?’ ” On the other side of the transaction, Mr. McCain reminded us that “ome Americans bought homes they couldn’t afford, betting that rising prices would make it easier to refinance later at more affordable rates.”
The ongoing housing crisis is intensified by the fact that “o many homeowners have found themselves owing more than their home is worth, because many never had much equity in the house to begin with.” To prevent this huge problem from recurring, Mr. McCain proffered the obvious solution, which somehow has eluded Mrs. Clinton and Mr. Obama: “Policies should move toward ensuring that homeowners provide a responsible down payment of equity at the initial purchase of a home.” While Hillary Clinton characterized Mr. McCain as sounding “remarkably like Herbert Hoover,” we say John McCain sounds exactly like John McCain — a straight-talker.