McCain derides Fed's bailout on housing crisis, while housing bust continues on

I've been a little busy for the past two weeks engaged in some serious spring cleaning in the house--we're talking scrubbing everything down. So blogging has been light. But I've been keeping a half eye on the news, and I certainly need to start posting on the news and politics. It seems there is so much in the news today.

But for tonight, I noticed this interesting little contradiction between what is going on with the continuing housing crash, and what Republican presidential candidate John McCain had just said in a speech on the housing market. First let us look at this MSNBC News story about McCain's speech regarding the housing slump:

SANTA ANA, Calif. - Republican John McCain on Tuesday derided government intervention to save and reward banks or small borrowers who behave irresponsibly though he offered few immediate alternatives to fixing the country's growing housing crisis.

"I will consider any and all proposals based on their cost and benefits," the certain GOP presidential nominee, who has acknowledged in the past that the economy is not his strong suit, told local business leaders south of Los Angeles.

[....]

The housing turmoil has rocked Wall Street and is dominating the presidential race as the nation faces an economic downturn and the Federal Reserve has taken steps to intervene.

Over the past two days, the Fed essentially bailed out the investment house Bear Stearns and announced it has auctioned another $50 billion in short-term loans at an interest rate of 2.615 percent to cash-strapped banks to help them overcome credit problems. Since December, the Fed has provided a total of $260 billion in short-term loans to banks.

[....]

McCain said he wants to leave the door open to a wide array of proposals to address the problems and seemed to suggest he might even be open even to solutions that stray from the GOP line.

"I will not play election-year politics with the housing crisis," he said, adding he would evaluate all proposals. "I will not allow dogma to override commonsense."

But the small-government advocate and four-term Arizona senator also put restrictions on how far he was willing to go.

"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 said. "Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy."

He said any government assistance to alleviate the housing crisis must be temporary and should be accompanied by reforms that aim to make the system more transparent and accountable to prevent a repeat of the crisis. He said no assistance should be given to speculators, or people who bought houses to rent or as second homes.

Asked whether the Federal Reserve went too far in helping Bear Stearns, McCain said: "It's a close call, but I don't think so." He said he doesn't support federal bailouts unless it has catastrophic effects on the entire financial marketplace and there were indications that a Bear Stearns failure would have rippled across the entire economy.

A couple of interesting items regarding McCain's speech. First, McCain contradicts himself, saying 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..." But then McCain said that the Federal Reserve did not go too far in bailing out Bear Stearns, and the company's own irresponsible behavior of involving itself too heavily in mortgage-backed securities business during both the housing boom and bust. Excuse me Senator McCain--you have just rewarded Wall Street executives for their own excessive greed and irrational behavior, knowing that if they screwed up (As they have with this subprime mortgage meltdown and the financial companies writing down billions in losses), then the U.S. taxpayer will always bail them out.

Of course, it gets better. Continuing further into the MSNBC story:

McCain also said that people shouldn't be able to buy homes with little or no money down, such as the interest-only loans that banks have given the last few years. Lenders, he said, "should never insure loans when the homeowner clearly does not have skin in the game."

In other words, the Fed should not help out homeowners, who may have been enticed by predatory lending practices, for purchasing homes they could not afford, and are now losing their homes. But it is more important for the Federal government to bail out Wall Street for pre-packaging all those subprime loans into now worthless investment securities.

What do you expect from a Republican?

In more housing bust news, we've got this MSNBC News story, titled Too soon to look for housing market bottom:

Last month’s pick-up in home sales — even as prices kept falling — has some homeowners wondering if the steep housing slump may be coming to an end. But most housing market watchers say the optimism is premature — and that this spring will likely be another washout for the residential real estate market.

“There is no clear bottom yet,” said David Blitzer, chief economist for Standard and Poor’s, which tracks home prices. “We hope it comes soon. But right now it's a hope.”

Home prices, meanwhile, fell 10.7 percent in January compared to a year ago, according to the latest reading of S&P’s Case-Shiller index. Prices were hardest hit in Miami and Las Vegas, where the index fell nearly 20 percent. Of the 20 cities tracked by the index, 13 posted their biggest drops in two decades.

A separate government index showed prices falling 3 percent in January compared to a year ago. That data is derived from a smaller sample of homes with mortgages that conform to the $417,000 limits on loans sold through government housing finance agencies.

Falling prices were clearly a factor in the 2.9 percent gain in existing home sales for February. That uptick has been taken as a sign by some analysts and industry officials that the housing market may be nearing a bottom.

I'm not so sure that housing has hit bottom yet. It is going to take a couple of years to get through all the adjustable-rate mortgage interest resets of the boom, which will increase the number of foreclosed homes that banks are sitting on. And while interest rates may be low, banks are not loaning out money for home buyers unless those buyers have absolute sterling credit and a huge chunk of money for a down payment. In other words, nobody is buying homes now because nobody has any money. This housing bust is going to be a huge drag on the U.S. economy, if Americans are not buying any homes and are not buying products to furnish their homes.

This is not good.