McCain and Palin on bailouts: We need fundamental reform

(By Ed Morrissey, Hot Air) - John McCain and Sarah Palin co-authored a Wall Street Journal essay regarding the bailout of Fannie Mae and Freddie Mac, which will cost taxpayers hundreds of billions of dollars. Both campaigns have reluctantly supported Treasury Secretary Henry Paulson’s decision to pull the trigger on the government takeover of both organizations, as they had declined into insolvency or close enough to make the margin irrelevant. However, as McCain and Palin insist, this shows the folly of government-sponsored entities in what should be a free market:

Enduring reform of Fannie and Freddie is a key first step. We will make sure that they are permanently restructured and downsized, and no longer use taxpayer backing to serve lobbyists, management, boards and shareholders.

Treasury has broadly followed the McCain plan, outlined months ago, and gets at the short-term heart of the problem. That plan reinforces the federal commitment to meet our obligations and get this mess behind us. It replaces management and board members. It requires that shareholders take losses first. It puts taxpayers first in line for any repayments. And it terminates future lobbying, which was one of the primary contributors to this great debacle.

Along with the commitment of taxpayers’ dollars, we should make market reforms to help ensure that we do not face this problem again. We will make sure the marketplace understands its obligations. Homeowners must be able to understand the terms and obligations of their mortgages. In return, they have an obligation to provide truthful financial information, and should be subject to penalty if they do not. Policies must be in place to ensure that homeowners provide a responsible down payment of equity in the initial purchase of a loan. In the future, Fannie, Freddie or any government organization should never insure a loan when the homeowner doesn’t have enough of his or her own capital in the investment.