Bailout Politics: Count McCain In

It looks as if free-market "dogma" won't keep him from backing taxpayer help for homeowners.


John McCain gave further insight into his economic views today. Along with his views that 1) a cap-and-trade system is the best way to deal with carbon emissions, 2) the 2001 and 2003 Bush tax cuts were tilted too far toward the rich, and 3) pharmaceutical companies are the "bad guys" in America's ongoing healthcare drama, you can add another view that McCain apparently shares with Democrats (and more and more Republicans in Congress): that homeowners need a taxpayer-funded bailout. Here is a key excerpt from his speech today on the housing crisis (boldface mine):

Let's start with some straight talk: I will not play election year politics with the housing crisis. I will evaluate everything in terms of whether it might be harmful or helpful to our effort to deal with the crisis we face now. 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. Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy. 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. When we commit taxpayer dollars as assistance, it should be accompanied by reforms that ensure that we never face this problem again. Central to those reforms should be transparency and accountability.

My take: Based on that speech, I think it is pretty easy to see how McCain could/would go along with something remarkably similar to the bailout plan being offered in the House by Barney Frank. The Frank plan doesn't make everyone whole or hit some cosmic reset button. It applies only to owner-occupied homes, and lenders would have to accept a write-down of the principal of the loan. Plus, homeowners may have to fork over some share of the future appreciation of the home to the Department of Housing and Urban Development in order to have an existing bank loan replaced by one from Uncle Sammy.

And with the language of the speech, McCain made it clear that he won't let small-government, free-market ideology get in the way of his support of government action that he deems necessary. This is also exactly the thing that one influential conservative economic activist told me he was praying that McCain wouldn't do because it further fuzzed the differences between him and Barack Obama and Hillary Clinton on spending—an issue many GOP-ers think helped cost them the 2006 congressional election.