More on McCain's housing speech

Earlier I wrote that it was hard to pick a headline out of Sen. John McCain's housing speech today, and tonight I stand corrected, by The New York Times: "Drawing a sharp distinction between himself and the two Democratic presidential candidates, Sen. 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.' "

A long headline, but a good summary of an important speech.

More: "... 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."

Key quotes from the speech, which you can read in its entirety here:

--"But in the process of a huge, and largely positive, upturn in home construction and ownership, a housing bubble was created. ... The normal market forces of people buying and selling their homes were overwhelmed by rampant speculation." Comment: It was a bubble -- sounds obvious, but you didn't hear this from Sen. Clinton yesterday; her lengthy analysis of the housing problem failed this pass-fail test of intellectual honesty.

--"Some Americans bought homes they couldn't afford, betting that rising prices would make it easier to refinance later at more affordable rates. There are 80 million family homes in America and those homeowners are now facing the reality that the bubble has burst and prices go down as well as up."  Comment: Again, sounds obvious, but Clinton's speech treated falling prices as a crisis to be stopped, not a reality to be faced.

--"In our effort to help deserving homeowners, no assistance should be given to speculators. Any assistance for borrowers should be focused solely on homeowners, not people who bought houses for speculative purposes, to rent or as second homes. Any assistance must be temporary and must not reward people who were irresponsible at the expense of those who weren't. I will consider any and all proposals based on their cost and benefits. In this crisis, as in all I may face in the future, I will not allow dogma to override common sense."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[amir]

hey anon1137,

You assume Obama or Hillary will spend zero on the war in Iraq? The difference in spending in Iraq will be minimal. Withdrawing might be even more expensive short term than staying.

The next president will withdraw much of the force in Iraq and leave some of it behind. McCain will withdraw slower, Obama fastest. And all three will have to leave a large contingency force for the foreseeable future, per the demands of the military, Iraqi governments and international obligations. The differences are not as big as advertised.

As for bailouts, the Dems will bailout more, the Republicans less, but both will have to act if the financial system crumbles.This also depends on who controls Congress.

By the way, both a bailout and the war in Iraq, are nothing compared to the financial problem this country will face when all baby boomers start asking for their social security and medicare. In twenty years these two will suck more than 50% of the federal budget.

[JohnnB]

It’s not a bad speech per se, but it’s mostly rhetoric.

“The past decade witnessed the largest increase in home ownership in the past 50 years. Home ownership is part of the American dream, and we want as many Americans as possible to be able to afford their own home.”

The past decade witnessed the largest decrease in home EQUITY in the past 50 years. Why don’t you emphasize the difference? Signing a debt contract with nothing down does not really mean one OWNS their home. Was your head in the sand along with your other “esteemed” colleagues?

“But in the process of a huge, and largely positive, upturn in home construction and ownership, a housing bubble was created.”

So, mega builders hiring tens of thousands of illegal aliens to substantially lower their labor costs - at the expense of American contractors/construction workers - is positive? This is similar to manufacturing outsourcing, but it’s even worse. These tens of thousands are a subset of the millions of Mexican immigrants who needed to find shelter and then signed on to basically “free” mortgages… which was the early dynamic that initiated the rise in housing prices. The worst (and earliest) locations are the biggest immigrant states of CA, AZ, NV and FL. Many, many, many more folks “bidding” on a relatively fewer number of houses. THEN, the wider speculation took hold across the country. (This is not about racism.)

“A sustained period of rising home prices made many home lenders complacent, giving them a false sense of security and causing them to lower their lending standards.”

BS… that’s the cart before the horse.

“That leaves us with a puzzling situation: how could 4 million mortgages cause this much trouble for us all?”

You’re obfuscating. It’s about most houses being overvalued and not supported by income levels. It’s about all forms of mortgages included refies and HELOCS. It’s about the overwhelming DEBT burden that the banks “manufactured” and then profited on in stupendous fashion. It’s about the biggest redistribution of wealth to the top 2% EVER.

“I will not play election year politics with the housing crisis… Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy.”

That definition sure does leave a lot of wiggle room for behind the scenes and inappropriate bailouts to Wall Street investment banks. A lot of wiggle room. This wouldn’t be an election year political message to your constituents, naw…

“When we commit taxpayer dollars as assistance…”

There ya go.

“GSEs (Government Sponsored Enterprises) should never insure loans when the homeowner clearly does not have skin in the game.”

That won’t cover all loans.

“…to improve the ability of our companies to compete by reducing our corporate tax rate”

Heard that one before.

[Granny]

Any relief the gov gives is only going to help those who are wealthy enough to afford the rich homes and are one payment late. What about those who struggle every month to make that mortgage payment on a house that is considered shelter and a warm place to be in the winter. It's tough out here and if they (the politicians) had to walk in our shoes they would wake up and take off those rose colored glasses. Every one is not rich. Life is hard in these times. The middle class have become the poor in this country. No one notices. No one cares, Democrats or Republicans. It's all about what they personally can gain from holding a position in our government. Sad but true.

[Laker]

JohnnB, "“GSEs (Government Sponsored Enterprises) should never insure loans when the homeowner clearly does not have skin in the game.”"

FHA loans with 0-3% down with low or no FICO scores and NO reserves...and with limits up to $730,000 are basically the new subprime loans backed by the federal government....Guys and Gals, Open your wallets please....

The solution to the mess is very simple, NO MORTGAGES WITHOUT 20% DOWN!
If we put that skin in the game, the number of speculators will decrease, people will fight to make payments, and not mail in the keys.
Also, if a grown up person does not have 10-20% down in cash, how does he expect to buy a house and keep it?
Is this a joke or what?
If you are not responsible enough to save some dollars, who will help you to replace your roof, bad AC unit?
And please don't cry about poor people living from pay check to pay check, they can RENT ! (and save in the meantime)

[SJ]

I agree with Laker. He is 100% correct.

I would also like to add that lenders should hold the risk involved with making a loan. He who makes the loan, holds the risk. This way, banks would actually first VERIFY a borrowers income level prior to making a loan. If the lenders are so reckless that they wont properly scrutinize a borrower, then the LENDER should lose money when the borrower does not pay them back.

Irresponsible banks are as much to blame in this mess as irresponsible borrowers and should not be bailed out.

This type of change would make it more difficult for deadbeats to get a loan in the first place and make the hyper inflation we have seen in home prices much less likely to happen in the future.

Let the free market correct itself. No government bailout!

[jbunniii]

I'm rather nonplussed by the fact that I may well be voting for a Republican presidential candidate for the first time!

Clinton and Obama have totally dropped the ball on this issue, insisting that the insane increase in house prices over the past few years must be sustained by all means necessary, using taxpayers' (i.e., yours and mine) money.

These two make Bush look financially disciplined by comparison, and I never thought I'd have occasion to say that.

[Peter I]

McCain's tough talk of course appeals to the bubble bloggers, me included.

Until, that is, I think about what he's actually saying. He's basically saying, No Bailouts! (Except for when Bailouts must happen.)

When must bailouts happen? When systemic instability of the economy is likely to occur. When is that likely to occur? When it's a financial institution with huge amounts of worthless mortgages on its books. Who, then, is being bailed out? Are the individuals who took those mortgages out being forgiven the loan? No. Are they able to stay in their houses? No.

The people being bailed out, ladies and gentlemen, are the fat cats who bought those worthless securities. So, yes, save every millionaire, leave no Millionaire behind! That should be McCain's motto. I can't believe any thinking Democrat would fall for it.

I say no bailouts for ANYONE, fat cats included. Will McCain say that? Not likely

[HelloKitty]

That seals the deal, Im a dem voting for Mcain

At least war spending doesnt prop up the 1m starter home in los angeles insanity.

stop the insanity!!