THE BLOG
10/18/2008 05:12 am ET Updated May 25, 2011

McCain-Obama-Backed Bailout of Fannie and Freddie is Bad Policy

While both the Republican presidential nominee, Sen. John McCain, and his Democratic counterpart, Sen. Barack Obama, proclaim themselves "agents of change" as a primary reason for the American people to elect them to the nation's highest office on November 4th, the fact is, neither of these candidates -- or their running mates -- represents a real break with the typical, big-government solutions to problems facing America. This is illustrated most clearly in the latest government "solution" to the "crisis" in the housing sector -- the bailout by the U.S. taxpayers of the two government-created and -supported enterprises, Fannie Mae and Freddie Mac.

All four of the candidates for the country's two major political parties publicly support this latest big government move by the Bush Administration. This puts voters on notice that an administration headed by either the McCain-Palin team, or the Obama-Biden, ticket will be business as usual, and "maverick" in name only.

The federal government has spent decades subsidizing the housing industry, and making it easier and easier for homebuyers to purchase homes, sometimes with virtually no equity stake in the homes they were purchasing. Then the subprime lending crisis hit. Mortgages went bad, lenders folded and investment houses tottered. Earlier this year, the Federal Reserve engineered a $30 billion bailout of Bear Stearns, and just this summer, the administration and Congress agreed to a $300 billion mortgage bailout.

Bankrupt borrowers get federal support while money is transferred to the usual interest groups. The federal government, which has never met a budget it couldn't bust, will counsel over-stretched homeowners about their finances. Congress tossed in an authorization for the Treasury to "invest" in Freddie Mac and Fannie Mae, which have guaranteed $15 trillion worth of mortgages - a large majority of all residential mortgages in the country.

Now the federal government has taken over the two organizations. But the Treasury Department can't tell us what it will cost: Maybe $25 billion; maybe $100 billion. Perhaps more. Who knows?

The old Fannie/Freddie management will get paid handsomely -- several million dollars for each of the departing CEOs -- for messing up while the American people clean up the mess. No one on Capitol Hill or in the White House will be held accountable for designing a system that enriched the housing industry at public expense.

Moreover, neither Sen. Obama nor Sen. McCain will stop the federal government from acting like a soup kitchen for well-connected businesses. Sen. Obama supported the housing bailout and endorsed the administration takeover of Fannie Mae/Freddie Mac. One of his advisers is former Fannie Mae CEO Franklin Raines, ousted for accounting irregularities in 2004.

Is this Sen. Obama's definition of change?

Sen. McCain also supported the housing bill and the Fannie/Freddie bailout. During his nearly three decades in Washington Sen. McCain has been AWOL in working to remedy the "mismanagement and flawed structure of these two companies" that he now claims are so obvious. So much for being the great reformer.

Now Sen. McCain and Gov. Sarah Palin have penned an article promising that they would never, ever let something like this happen again: "For years, Congress failed to act and it is deeply troubling that what we are now seeing is an exercise in crisis management rather than sound planning, and at great cost to taxpayers."

True. But just what was Sen. McCain doing when this sound planning was absent? He got into trouble for befriending Charles Keating, whose failed Savings and Loans cost American taxpayers big money in the 1980s. Sen. McCain collected lots of campaign cash from companies doing business before the Commerce Committee that he chaired. He launched a crusade against steroids use. He authored legislation making it illegal to criticize incumbent politicians before an election, the very antithesis of reform. And McCain attacked pork barrel spending -- which is good, but it only accounts for about $17 billion out of the $3 trillion federal budget.

McCain has yet to offer a reform plan that reforms anything. He and Gov. Palin talk about restructuring Fannie Mae and Freddie Mac, not privatizing them. As long as the organizations are government run, the lobbyists that Sen. McCain and Gov. Palin denounce will manipulate the system for the benefit of everyone but the public. The only solution is to make them truly private and say never again when it comes to government bailouts.

Sen. McCain and Gov. Palin act as if they have discovered an important truth when they criticize dishonest borrowers -- but lying on a mortgage application already is against the law. They say, "We will push the nation's top mortgage lenders to provide maximum support to help cash-strapped, but credit-worthy customers." However, lenders already have an incentive to help these customers, since the companies also lose big from unnecessary foreclosures. Rather, all of the pressure from politicians has been to get banks to provide loans to customers irrespective of their credit-worthiness.

Anyway, how do Sen. McCain and Gov. Palin think bailing out improvident borrowers, lenders and investors will discourage irresponsible behavior in the future? History and human nature tells us that every bailout is both a vehicle for abuse and an invitation for more bailouts. It is far too late for the sort of half-hearted approach that they propose.

If Sen. McCain really believed in straight talk, he and Gov. Palin would say that people should be responsible for the consequences of their own actions. No more bailouts; no more subsidies.

Today the presidential candidates are wasting time arguing about lipstick on a pig while the federal treasury is being looted. America desperately needs serious leadership to respond to serious problems. Unfortunately, this leadership will not come from either the Republican or the Democratic parties.

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Bob Barr is the Libertarian Party's nominee for president, and represented the 7th District of Georgia in the U. S. House of Representatives from 1995 to 2003.