Partisan solutions won’t help

By The Standard Staff - 04/01/2008

In recent months, Sen. Barack Obama has compared the mortgage crisis to Enron. Sen. Hillary Clinton has likened the situation to Herbert Hoover and the Great Depression. And Sen. John McCain has proposed holding high-level meetings with people smarter than him to talk about it.

The White House hopefuls all delivered lengthy economic policy speeches last week. And while campaign bombast doesn’t solve the housing fiasco, the candidates’ words do provide insight into each one’s view of government oversight and free markets.

Obama and Clinton see the problem in populist terms: The abuses of Wall Street sinners cast the nation into a hellish economic pit from which salvation comes through regulation. McCain sees the crisis mostly as a matter of personal irresponsibility — lenders and borrowers who created the mess need to pay the price.

Unfortunately, McCain’s comments sound as if he’s just awakened from a long nap. His ideas seem steps behind what the Bush White House, the Federal Reserve and the Treasury, mortgage lenders, community groups and others are already doing. This signals to us that he hasn’t recognized the magnitude of the problem or the sense of urgency.

Clinton’s approach is also unsettling: A 90-day moratorium on foreclosures and a five-year freeze on subprime adjustable-rate mortgages. The effect would not be a cooling-off period for an orderly resolution of problem loans, but a deeper freeze of the housing market.

Obama comes closest of the three to a reasonable market-based, middle-ground solution to the immediate crisis. He’s proposing a government program to make it easier for borrowers to convert troubled subprime adjustable-rate loans into fixed-rate, 30-year mortgages. He’s right on this point. Borrowers and lenders have to collectively work this out; the government is an important matchmaker, safety net and lender of last resort.

We hope that politicking on this housing issue won’t lead to decisions that aren’t best for the economy.

Government’s role is to facilitate market stability, not to eliminate risk or cripple financial innovation. That requires a modern regulatory structure that provides meaningful oversight and financial transparency in step with the expanding global role of hedge funds as well as nontraditional lenders and investors. It also must responsibly promote financial innovation and access to capital that corporations and indivi-duals need to keep an economy churning.

What will not work are ill-conceived partisan “solutions,” such as adding another stimulus package when the first has yet to filter into the economy. Political rhetoric is not the answer.

— The Dallas Morning News WHAT WOULD THE CANDIDATES DO?

John McCain: Hold meetings with accounting professionals and top mortgage lenders to help cash-strapped borrowers.

Hillary Clinton: Provide $30 billion to states and cities to help homeowners avoid foreclosure; establish a 90-day moratorium on foreclosures; freeze subprime adjustable-rate mortgages for five years; empower the Federal Housing Authority to back private-sector auctions of restructured mortgages.

Barack Obama: Authorize the Federal Housing Authority to provide incentives for refinancing existing mortgages into fixed-interest 30-year loans; provide $10 billion for homeowner relief.