updated 10/28/2008 5:37:27 PM ET 2008-10-28T21:37:27

President Bush's first treasury secretary says Congress should scrap plans for a new economic stimulus package and instead require that no future home mortgage be awarded without a 20 percent down payment.

Paul O'Neill said Tuesday it doesn't surprise him that neither presidential candidate has endorsed his position, but he insisted it is the best way to quickly improve the nation's economic footing.

"Unfortunately we've gotten to a point where people that want to run for president don't think they can tell the truth and still get elected," O'Neill told reporters before speaking at a conference. "I'm hopeful whichever person gets elected, they'll be better than what they've said. An awful lot of presidential campaigns now are pandering to the lowest common denominator. They promise people everything."

O'Neill, who hasn't endorsed a candidate in the race and says he wouldn't be interested in serving in either administration, made a personal pitch last month to Democratic nominee Barack Obama concerning his idea to mandate down payments. He declined to characterize Obama's response.

O'Neill, a former CEO of aluminum giant Alcoa Inc., served as treasury secretary for the first two years of Bush's presidency, including leading the financial response to the Sept. 11, 2001, terrorist attacks.

While he praised aspects of the recent $700 billion financial bailout, which he says has allowed world markets to take a "deep breath," O'Neill said there should have been government action to combat faulty home loans far earlier. In 2006, he says, 30 percent of mortgages had no down payment and a larger number of those buyers defaulted on their first payment.

"That was a strong enough signal we should have shut down this ... flagrant abuse of the principles of home finance," O'Neill said. "It was bound to crater. It was absolutely bound to come down around our ears, which it has."

If every mortgage was backed by a 20 percent down payment, O'Neill said, the financial system would be protected long-term, even if some individual investments or businesses failed.

"If you can't afford a home mortgage, we shouldn't give you one," he said.

O'Neill said he is disappointed that the political response from both parties includes wide support for another economic stimulus package rather than curbing additional bad mortgages. He estimates that only 20 percent of the money pumped into the last stimulus package actually stimulated the economy, with the rest being used to pay off bills or going into savings accounts.

Should there be another one, he fears much of it will be bogged down by pet projects from lawmakers.

"In a way it's a dangerous time because every politician can imagine some additional money that they could put into a package that they believe will help them get re-elected," O'Neill said. "It's like a feeding frenzy when it looks like they're going to have more stimulus programs. It's almost as though there's no connection and understanding that at the end of the day, we the American people are going to have to pay for this."

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