McCain tells 'Dispatch' that bailout is emergency measure 'to stop bleeding'

McCain tells 'Dispatch' that bailout is emergency measure 'to stop bleeding' Republican nominee says Paulson, Bernanke convinced him plan needed Sunday, September 28, 2008 7:36 PM By Joe Hallett THE COLUMBUS DISPATCH Along with Sen. Barack Obama, Sen. John McCain has embraced a $700 billion bailout of the nation's troubled financial industry.

In a telephone interview with The Dispatch from Washington yesterday, McCain said that Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke convinced him that the rescue plan is necessary.

"I'm sure everybody understands that this was something that just had to be done," McCain said. "I'm kind of sorry in a way, but the tone of voice that Bernanke and Paulson used about this crisis, I've never heard anything like it in the years that I've been in public office, or alive."

McCain and his running mate, Alaska Gov. Sarah Palin, will appear at a rally this morning at Capital University. In advance of the visit, McCain talked with The Dispatch about the financial crisis and other topics:

Dispatch: Some commentators criticized you for what they called erratic statements and actions last week heading into negotiations on rescuing the economy. Describe how you played a productive role in all this.

McCain: I'll leave that up to others to make that judgment. This was an issue that was transcendent. I suspended my campaign and came back to Washington because I thought that it was vital to do so. Sen. Obama said he was available to discuss the issue by phone. I didn't want to phone it in. I'm proud that we were able to get this done, and I'll give the credit to everybody else.

Dispatch: In the final analysis, what makes you think this bailout plan will work?

McCain: Well, I think that it has to. The world's financial structure as well as this nation's is under enormous pressures. I don't think it's our recovery. What I think it is, is an emergency measure to try to stop the bleeding. We've got a long way to go. This isn't the beginning of the end; it's the end of the beginning if we pass this, and I'm optimistic that we will.

Look, we've got to create jobs for working families, working families have to be able to educate their kids, they have to stay in their homes, and that's the key to this. In the meantime, we couldn't allow them not to be able to go and get the loans that small businesses need, the credit that people need to do the things that are necessary to educate their kids. This was a critical moment, but it's certainly a long way from ending the financial difficulties that working families are undergoing right now.

Dispatch: You have campaigned frequently in Ohio. Can you win the presidency without winning Ohio?

McCain: It would be very, very hard. You and I both know that you've got to go all the way back to Jack Kennedy (in 1960 to find a nominee who lost Ohio and still won the presidency). I think it would be very difficult, and I don't intend to find that out. I will campaign as hard as I can in the state of Ohio. I've got a real head wind, and I know that I'm the underdog.

Dispatch: Polling indicates and even Democrats concede that race will be a factor against Sen. Obama in Ohio. How would you feel if you won narrowly in this state and race was the deciding factor?

McCain: I just don't think that could possibly happen because I rely on the good judgment of the people of Ohio and America. Times are too tough. They're going to make a decision based on who they think can best bring some kind of economic future to working families in Ohio and across this country. I just have an abiding faith in the American people that, particularly in these times, that they'll make the choice based on who is best to lead.

Dispatch: What would you say to voters who are inclined to make race the basis for their vote?

McCain: I wouldn't do that. I urge them strongly that these are too perilous times, both national-security-wise and economically. All I can say to them is do what they think is best for them and their country.

God I miss Fred Thompson. I’ve pasted Fred’s take below.

The Danger of Government Guarantees

I’ll bet it came as a surprise to most folks that the financial stability of the world as we know it depends upon the survival of a couple of outfits called Fannie Mae and Freddie Mac. Yet that’s what the so-called experts are telling us. Moreover, we taxpayers are now being asked to guarantee Fannie and Freddie’s tab, one that could make the $124 billion S&L bailout of the late 1980s look cheap.

So how did we get stuck with this bill? Well, Congress wanted to “do something” about what it saw as a “housing problem.” To them that meant that they should create an even bigger problem.

So Congress passed laws that made it easier for hopeful home-buyers to buy houses … even when they couldn’t afford them. Then the Fed and other regulators helped, in the form of easy money and loose credit standards for mortgages.

Not surprisingly demand for houses grew, home prices rose, lenders financed additional questionable mortgages, fueling even higher prices and so on. You get the picture. This is called a bubble.

Then an amazing thing happened – apparently impossible to foresee. Home prices did not continue to rise forever! Home prices came down and easy money dried up, causing the above mentioned cycle to reverse. In other words, the bubble burst.

So you’d think the in-over-their-heads homebuyers and the mortgage bankers would take the hit, and the market would right itself. No reason for an international meltdown here, right?

Not so fast my friends. Years earlier Congress established Fannie and Freddie as purchasers of these mortgages, which they could bundle up, repackage and sell to investors, freeing up more mortgage money. As government creations tend to do, the two companies grew until they either owned or guaranteed about half the nation’s $12 trillion dollars in mortgages.

Fannie and Fred were “government sponsored enterprises” which means heads they win, tails you lose. If they make money stockholders, creditors and Fannie and Freddie employees – some making millions annually – get the benefit. But now that mortgages have hit the skids, with mounting losses, the taxpayers potentially face trillions in exposure. This is because there is an “implicit” (read “actual”) government guarantee of Fannie and Freddie’s obligations and both are now too big to be allowed to fail. This is called the “bailout phase,” which will probably lead to a bigger bubble in the future.

Lost in this immense, complex mess is the root problem most people are missing: the government is gradually becoming the guarantor of seemingly every important aspect of American secular life, creating incentives and bureaucracies that cause failure and invite fraud.

In Fan and Fred’s case, it was in no one’s interest to turn off the bubble machine. Just the opposite. The system induced borrowers to take on financial obligations they could not afford and lenders to lower lending standards. Fannie and Freddie went along because their managers’ compensation depended on the firms’ short term financial performance. And investors continued to buy complex security packages they didn’t understand, because the securities were viewed as government-backed.

Heavy campaign contributions by those benefiting from this scheme induced Members of Congress to avert their gaze from the ugly mess that was unfolding.

You’d think we’d have learned by now: when the backstop of the federal treasury makes it easier for politicians, lenders, borrowers, welfare recipients, government contractors, or anyone else, to serve their own self interest at the expense of the taxpayer, many will do just that.

That is why we continue to see self-dealing, moral lapses, outright fraud and lack of management and oversight in a wide array of programs and government-sponsored entities, from housing to Medicare, education and the Small Business Administration, all costing taxpayers billions, even trillions of dollars.

Our Founding Fathers knew more than a little bit about human nature. It is one reason why in the Constitution, the federal government was given certain delineated powers and no others. I hate to burst another bubble, but our government simply doesn’t have the authority or the capability to be the guarantor or insurer of our every need or desire. Isn’t it time we started sending that message loud and clear to the big enablers in Washington?

Fred Thompson

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