McCain leaves housing crisis options on table

/ Source: The Associated Press

Republican John McCain on Tuesday derided government intervention to save and reward banks or small borrowers who behave irresponsibly though he offered few immediate alternatives to fixing the country's growing housing crisis.

"I will consider any and all proposals based on their cost and benefits," the certain GOP presidential nominee, who has acknowledged in the past that the economy is not his strong suit, told local business leaders south of Los Angeles.

Democrats accused McCain of lacking the skills needed to lead a country on the brink of recession.

"Instead of offering a concrete plan to address the crisis at all levels, McCain promised to take the same hands-off approach that President Bush used to lead us into this crisis," Democratic Party Chairman Howard Dean said in a statement.

The housing turmoil has rocked Wall Street and is dominating the presidential race as the nation faces an economic downturn and the Federal Reserve has taken steps to intervene.

Over the past two days, the Fed essentially bailed out the investment house Bear Stearns and announced it has auctioned another $50 billion in short-term loans at an interest rate of 2.615 percent to cash-strapped banks to help them overcome credit problems. Since December, the Fed has provided a total of $260 billion in short-term loans to banks.

On Monday, Democratic presidential candidate Sen. Hillary Rodham Clinton proposed several remedies to the home mortgage problems, including greater protections for lenders from possible lawsuits by investors.

McCain, in the midst of a weeklong western fundraising swing, focused on the home-financing crisis at an event in Orange County as he tried to rebut Democratic criticism of his economic credentials.

His pitch, though, offered little in the way of specific proposals to immediately address the crisis, as he stuck with his longtime preference of limited government intervention and letting market forces play out.

Later, McCain took issue with the notion that his solutions were thin, telling reporters: "I think I've laid out some pretty clear principles, some pretty clear proposals today."

McCain said he wants to leave the door open to a wide array of proposals to address the problems and seemed to suggest he might even be open even to solutions that stray from the GOP line.

'Will not allow dogma'
"I will not play election-year politics with the housing crisis," he said, adding he would evaluate all proposals. "I will not allow dogma to override commonsense."

But the small-government advocate and four-term Arizona senator also put restrictions on how far he was willing to go.

"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," McCain said. "Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy."

He said any government assistance to alleviate the housing crisis must be temporary and should be accompanied by reforms that aim to make the system more transparent and accountable to prevent a repeat of the crisis. He said no assistance should be given to speculators, or people who bought houses to rent or as second homes.

Asked whether the Federal Reserve went too far in helping Bear Stearns, McCain said: "It's a close call, but I don't think so." He said he doesn't support federal bailouts unless it has catastrophic effects on the entire financial marketplace and there were indications that a Bear Stearns failure would have rippled across the entire economy.

McCain also said that people shouldn't be able to buy homes with little or no money down, such as the interest-only loans that banks have given the last few years. Lenders, he said, "should never insure loans when the homeowner clearly does not have skin in the game."

In the short term, he called for the country's accounting experts to meet to discuss current accounting systems and said the country's top mortgage lenders should pledge do everything possible to help their cash-strapped but creditworthy customers.

As a freshman senator, however, McCain took a different approach. In early 1991, the Senate's ethics committee concluded that McCain "exercised poor judgment in intervening with the regulators" on behalf of banker Charles Keating Jr. Keating was a wealthy Arizona real estate developer and owner of a California thrift that failed during a nationwide savings and loan crisis — when Keating and other bankers made risky investments with depositors' money.

McCain was known for accepting contributions from Keating, flying to the banker's home in the Bahamas on his company planes and taking up Keating's cause with U.S. financial regulators as they investigated him. Keating served more than four years in prison for fraud.