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McCain's Homeowner Bailout Plan is Flawed

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When John McCain first announced his homeowner bailout plan, called the American Homeownership Rescue Plan, the description of the plan indicated that the government would not pay face value for troubled loans but would pay a discounted rate reflecting the declining value of the property. The line used by the McCain campaign was:” Lenders in these cases must recognize the loss that they’ve already suffered.”

Now, McCain has amended his plan and is proposing to pay face value for the loans. This means that McCain wants to buy loans at their original inflated prices and then issue new loans at a reduced, market-rate-adjusted price. Taxpayers would absorb the losses but both homeowners and financial institutions would come out ahead (The Wall Street Journal explains in more detail and offers their reservations about such a plan).

I always thought McCain was a “share the burden” guy. In many of these cases of bad loans, both the homebuyer and the lender made very poor decisions. While I know that predatory lending did occur, I’m also pretty sure that most buyers understood the risks. They tried to make a home an investment and they lost the gamble. While I sympathize with these people, I don’t feel we have the responsibility to bail them out anymore than we have a responsibility to bail out the financial institutions who failed to do due diligence before issuing these loans. So why does McCain want the taxpayers to suffer the entire burden?

Clearly, McCain wants to 1) show the public he cares about people in trouble and 2) wants to attempt to stop to bleeding before the economy completely hemorrhages. Both noble goals. But this plan is too one-sided. Homebuyers and lenders who made bad decisions should shoulder a fair share of the consequences. As a taxpayer, I am willing to help out but I find the McCain plan fundamentally unfair. Plus, the precedent it sets is horrible and will do little to prevent poor decisions in the future.

McCain should really consider revising his plan yet again.