(This piece is by Drum Major Institute Senior Fellow Mark Winston Griffith)
It's hard to imagine that there could be a serious presidential candidate who would declare a "no-action" position on the subprime loan and foreclosure crisis. John McCain, however, holds that dubious distinction.
Not a day goes by that we don't hear another grim announcement about the downward spiral of the economy, or how homeowners with subprime loans are losing their homes in record numbers. Estimates of likely foreclosures over the next few years related to subprime mortgages have ranged between two and three million. In some parts of the country, foreclosures are outpacing home sales. Recession looms and the National Association for Business Economics recently declared the subprime foreclosure crisis as the greatest threat to the American economy.
The scariest part is that hundreds of thousands of subprime loans are scheduled to re-set in the latter part of this year and into 2009, which means that the economic policies of the next president will have a profound impact on the lives of ordinary working- and middle- class Americans.
How has John McCain responded to this call to leadership? By essentially saying that nothing should be done. In his remarks at a conference in Santa Ana, California on Tuesday, McCain rejected any broad policy response and actually staked out a far weaker role for the federal government in addressing the foreclosure crisis than even the Bush Administration has offered. Although he was quick to blame homeowners and "rampant speculation", there was scant recognition by McCain of exhaustively documented predatory lending practices or the scandalous oversight failures of federal regulators, legislators and a president who arguably encouraged abusive lending practices through his ownership society".
To the extent that McCain offered any specific "solutions" at all, it was to encourage mortgage lenders to reach out to distressed borrowers - something that banks working with Secretary Paulson under the Hope Now alliance are supposedly doing already. His other bright idea was "to convene a meeting of the nation's accounting professionals to discuss the current mark to market accounting systems."
Great. Just what homeowners and the economy need: The formation of a committee of accountants.
McCain has buried his head in the sand all along about the role of the federal government in the foreclosure crisis. In December 2007 he told the editorial board of New Hampshire's Keene Sentinel that he is "not smart enough" to offer a "specific solution". While this might qualify in McCain's book as "straight talk", it's also shockingly weak-kneed and irresponsible.
In comparison, Clinton and Obama have presented specific proposals that have been subjected to intense scrutiny. Clinton has called for billions in government assistance, a foreclosure moratorium, and rate freezes. Obama has proposed a universal mortgage credit, the establishment of a mortgage refinance fund, and greater loan disclosure. While critics on the left and right may take issue with these approaches, Clinton and Obama have at least acknowledged the severe financial distress confronting homeowners and would offer Americans specific plans to address it.
But a different legacy is in store for McCain if he is elected president. As a member of the Keating Five, that notorious group of Senators accused of currying favor for Charles Keating, chairman of the failed Lincoln Savings and Loan Association, McCain became a face of the Savings and Loan crisis of the eighties and nineties. With breathtaking irony, McCain is poised to associate himself with another banking meltdown by sitting idly by, in Herbert Hoover-esque fashion, as working class Americans and communities are devastated by the effects of homeowner displacement, property devaluation, family asset depletion, and the loss of real estate tax revenue.
One possible explanation for McCain's hands off approach is that some of the biggest names in the subprime mortgage industry, Citibank, Goldman Sachs, Merrill Lynch and Lehman Brothers, for example, have been among McCain's largest campaign contributors.
But these Wall Street giants have figured just as prominently in Clinton and Obama's campaigns. And unlike during the S&L debacle, McCain, now the presumptive Republican presidential nominee, has gained the moral authority and opportunity to actually intervene.
So the issue isn't whether John McCain is "smart" enough to propose government actions and market reforms that could relieve some of the nation's financial pain while attempting to make predatory mortgage lending a thing of the past. The question is; does he care enough to bother.