Sen. John McCain has a new plan for our economy. He wants to directly bail out every floundering homeowner. Does this sound like the judgment of leader, let alone the president of the United States? Neither Democrats nor Republicans can swallow this most recent ploy, which is only slightly more ridiculous than McCain suspending his campaign a couple of weeks ago to work on the bailout bill. To say the “straight talk express” is missing a wheel would be an understatement. The McCain-Palin ticket has led Americans astray from the real issues underlying the market crisis.
One appropriate explanation for the crisis is buried in the underwriters of home and commercial property — Fannie Mae and Freddie Mac. During the housing explosion, these companies would purchase loans from banks and profit from the interest, which was a fairly lucrative business for a while.
Government deregulation allowed Fannie Mae and Freddie Mac to gamble away Americans’ hard-earned investments. As profits soared, people no longer needed a job or money to get a loan. Standards to obtain loans became lax, and voila, the bank is now a used car dealership! Meanwhile, banks knew Wall Street underwriters would purchase the home and commercial loans regardless of the risk.
But as college students know, you can’t live beyond your means for long before excess spending catches up with you. Similarly, when the mortgage bubble burst, rates of investment shrunk and expected earnings plummeted.
Evidence of this national crisis can be found right here in Madison. Look no further than West Washington for a high profile debacle. Phase II of Metropolitan Place, a 164-unit condominium across from Capitol Centre Foods, defaulted on $26 million in loans. Who bears part of the responsibility? Associated Bank. How about Milwaukee’s First Place on the River? The project is over budget, which leaves AnchorBank $56 million in the red.
When the banks gave out these loans, did any of them ask if 164 new families would move to downtown Madison? Does Milwaukee need another condominium project?
McCain’s plan does nothing to address the car dealership dilemma. He essentially wants to bail out both lenders who accepted dicey projects and consumers who agreed to dangerous terms.
McCain’s plan entirely removes the responsibility of the lender and taxpayer. Rather than an institution of enforcement, the government becomes a mother sighing with disapproval. The plan awards all those who made poor economic decisions without addressing the broader concerns of the marketplace.
The numbers simply don’t add up for McCain. As the National Debt Clock adds a new digit — increasing to $10 trillion — the $300 billion price tag for his plan is conservative, at best. According to MarketWatch, the average troubled mortgage is $100,000 to $125,000. Given that roughly five million homes are threatened, the expected price tag will be upwards of $600 billion — maybe more depending on the home estimates.
Rather than creating a safety net, McCain’s proposal is a bailout for 1.5 percent of Americans — Americans who would already be covered by the current bailout plan. His plan only encourages those on the margins to rely on a government loophole rather than pulling themselves out of debt.
The U.S. treasury secretary already obtained the power to bail out troubled homeowners if deemed necessary. McCain is suggesting his supplementary solution is a grand new idea, but it is really a temporary fix that ignores the long-range problems. Sen. Barack Obama understands the reasons America is facing an economic crisis and is better prepared to remedy the situation. Obama knows it won’t be easy or simple, but he is willing to break from the Bush policies of the past eight years. In a deep economic crisis innovation is key, and Obama offers a new outlook on the economy.
Scott Resnick ([email protected]) is electronic media chair of College Democrats.
