John McCain gave a speech on the housing downturn earlier this week that did not hyperventilate or pander.
He put the problem in perspective. There are about 80 million homeowners in the United States. Of those, 55 million have mortgages. And of those who have mortgages, 51 million are current.
He did not offer any new sweeping proposals. In fact, he said: "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."
McCain encouraged voluntary workouts between borrowers and lenders. But he concentrated his policy prescriptions on how to prevent the current problems from recurring, mostly through requiring homeowners to make higher down payments and higher capitalization requirements for financial institutions.
This is remarkable behavior for a modern American politician. The almost universal practice of today's pols is to say to voters: Whatever problem you think you have, I've got a government program for it.
Hillary Clinton also gave a speech on housing last week, and she was in full pander mode.
Before getting into her housing specifics, it's worth considering what she said would be her general approach to dealing with economic issues.
"We need a president who is ready on day one to be commander-in-chief of our economy," Clinton proclaimed. This is a remarkable idiotic statement.
There can be a commander-in-chief of a military organization. There is a chain-of-command and those on the bottom do what those on the top tell them to do, or they get thrown into the brig.
The economy is the aggregation of a billion or so independent decisions made by hundreds of millions of people daily. There is no chain-of-command.
There can be no commander-in-chief of the economy, and it shouldn't be entrusted to someone who aspires to be one.
Clinton said that the president should "act at the first sign of trouble, working with experts …."
Now, a free-market economy has self-correcting mechanisms which premature government interventions can short-circuit. And economies run by technocrats haven't done very well.
Let's, however, put Clinton's claim to the test. The housing bubble was caused by too many people buying too many homes on too easy of terms. Does anyone really believe that a President Hillary Clinton would have intervened to make home buying tougher?
To respond to the current housing problem, Clinton proposes a 90-day moratorium on foreclosures and a five-year freeze on resets under adjustable rate mortgages.
The latter is too much even for Barack Obama. As he has pointed out, it's not limited to those in trouble. And he understands what such massive interference in mortgage contracts would do to the availability and cost of future financing for home purchases.
Obama, however, joins Clinton in proposing that the federal government get into the business of basically guaranteeing homeowner equities.
Both want federal assistance not only for those who are having trouble paying their mortgages, but for anyone who has a mortgage that exceeds the current value of their home.
They support proposals for the federal government to guarantee the refinancing of mortgages currently in negative equity territory, if the lender will write off the principal down to the current value. They would also be willing for the federal government to purchase mortgages and refinance them directly.
Both Obama and Clinton are proposing that taxpayers take on billions of dollars of risks that should be borne by private parties, in ways that short-circuit the necessary correction from the overinvestment in housing that's currently taking place, while simultaneously making it more difficult to attract private investment capital for housing after the correction is over.
McCain is an instinctive politician. He senses things more than he tends to work them through paradigmatically.
Much has been made of McCain having indicated that economics isn't his strongest suit. On the housing downturn, however, McCain's instincts are much sounder than the considered judgments and conclusions of his potential opponents.
