Solving the mortgage crisis

From The New York Times:

SANTA ANA, Calif. — Drawing a sharp distinction between himself and the two Democratic presidential candidates, Senator John McCain of Arizona warned Tuesday against vigorous government action to solve the deepening mortgage crisis and the market turmoil it has caused, saying 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’s comments came a day after Senator Hillary Rodham Clinton of New York called for direct federal intervention to help affected homeowners, including a $30 billion fund for states and communities to assist those at risk of foreclosure. Mrs. Clinton’s Democratic opponent, Senator Barack Obama of Illinois, has similarly called for greater federal involvement, including creation of a $10 billion relief package to prevent foreclosures.

As the foreclosure crisis has rippled across the economy, it has thrust itself to the forefront of the presidential race, with Democrats seizing on the issue in urging forceful government steps to alleviate the crisis. Mr. McCain’s remarks Tuesday, to a group of Hispanic businessmen here, signaled a sharpening divide between the two parties’ candidates, with the senator warning against quick, costly government fixes to a crises rooted in the private sector.

“Rampant speculation” on both sides is the root cause of the crisis, Mr. McCain said. He placed part of the responsibility for the mortgage mess on lenders, who he said had grown “complacent” in a rising market and as a result acquired a “false sense of security” that caused them to “lower their lending standards.”

But in a departure from Democrats, who have focused on the lending industry’s role in the crisis, Mr. McCain suggested that some homeowners had also engaged in dangerous practices, including borrowing too much in hopes that a rising market would cover their mortgages.

Mr. McCain has often addressed the mortgage crisis in general terms on the campaign trail, but in Tuesday’s remarks he offered a more comprehensive look at the challenge facing the nation — and the roots of the problem. He blamed a profusion of complicated and recently devised financial instruments “that weren’t particularly well understood by even the most sophisticated banks, lenders and hedge funds.”

Mr. McCain appeared to be trying to confront questions about his dexterity in dealing with the economy, a subject that he has admitted is not his strongest suit. But his remarks drew a quick, pointed rebuke from Mrs. Clinton, who criticized Mr. McCain’s hands-off, market-oriented approach, saying it would lead to “a downward spiral that would cause tremendous economic pain and loss” for Americans.

“It sounds remarkably like Herbert Hoover, and I don’t think that’s good economic policy,” Mrs. Clinton told reporters in Greensburg, Pa. “The government has a number of tools at its disposal. I think that inaction has contributed to the problems we face today, and I believe further inaction would exacerbate those problems.”

In addition to urging $30 billion in federal aid to states to help homeowners, Mrs. Clinton on Monday also endorsed federal legislation to expand the government’s ability to guarantee restructured mortgages, which she believes would lead more banks and other private entities to buy and resell mortgages.

Mr. Obama’s plan emphasizes making it easier to convert subprime loans to fixed-rate, 30-year loans, while requiring that borrowers have access to better data on loan costs and requiring greater scrutiny of lenders. On Tuesday, he said, “It’s deeply troubling that John McCain is suggesting that the best way to address the housing crisis is to sit back and watch it happen.”

In this case McCain is correct, although he failed to address the way in which government itself helped create the problem by leaning on lenders to develop ways in which minorities who were not qualified financially for mortgages could still get home loans. However McCain may have picked the wrong issue to be right on as the majority of the American public has been trained from birth to deal with any problem by bleating for a government handout.

As for the Democrat candidate's solutions Hillary shows that she has neither an understanding of history nor economics. Obama's plan is much less objectionable and seems to indicate that he has some economic advisers who actually can tell the difference between their ass and a hole in the ground.