Washington, D.C. According to Associated Press, nearly 60 percent more U.S. homes faced foreclosure in February than in the same month last year. A total of 223,651 homes across the nation received at least one notice from lenders last month related to overdue payments, up 59.8 percent from a year earlier. As the number of foreclosures and distressed financial institutions was growing alarmingly, the presidential candidates found themselves hard pressed to offer their explanations and solutions to the problem.
Senator McCain blamed the lenders for misleading gullible people into buying homes they could not afford. He saw the housing bubble “made worse by a series of complex, interconnected financial bets that were not transparent or fully understood.” How those bets were structured and interconnected, the Senator did not explain.
"I will not play election year politics with the housing crisis," he asserted. "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."
Now the Senator advocates the tough love approach of laissez faire: Let the markets take care of the losers! People victimized by predatory lenders will have only themselves to blame if their homes are foreclosed. McCain wants any public assistance extended to defaulting mortgagees to be temporary and not be given to blatantly irresponsible borrowers. He urged the top mortgage lenders "to do everything possible to keep families in their homes and businesses growing.”
Democrat Barack Obama told the Boston Globe that McCain "offered not one policy, not one idea, not one bit of relief" despite the growing wave of foreclosures and decreasing house values. Obama called for a $30 billion economic stimulus plan aimed at helping struggling homeowners. He also wants the existing regulations for financial institutions modernized.
Democrat Hillary Clinton lost no time countering McCain with a call for extensive government intervention. She proposes to extend substantial aid to defaulting borrowers in danger of losing their homes so they can restructure their mortgages. She asks to ease legal liability for mortgage lenders, to help unfreeze the mortgage market, and to give states and cities an additional $30 billion to fight foreclosures. Supremely confident of her own leadership competence, Hillary offers herself as “a president ready on day one to be commander-in-chief of the economy."
The Republican National Committee (RNC) promptly retorted that Hillary’s plan could only worsen the problem. Why that would be the case, the RNC did not tell. Ironically, however, right under the nose of the Republican White House, the Federal Reserve had already taken steps, unprecedented since the Great Depression, to shore up Wall Street’s failing banks with a $200 billion of taxpayer-financed credit. The beneficiaries of that benevolence are the same banks that greedily doled out sub-prime home loans, often on predatory terms, and then sold them profitably as securities to unwitting investors.
The Fed apparently does not want to re-regulate the banking industry but it seems to expect the $200 billion subsidy to the endangered banks to trickle down to their customers at risk of losing their savings and their home. This is the same kind of bailout the federal government engineered for reckless bankers during the savings and loan scandal of the 1980s. It rewarded wealthy political donors for irresponsible behavior and ignored the real victims.
As the presidential elections approach, one wonders if the voters will be hankering for a laissez-faire champion who says that the markets will sort it all out, or if they prefer strong governmental intervention of the kind taken by the Fed or proposed by Senators Obama and Clinton.