McCain warns on housing bailouts

John McCain has promised to consider all options to ease the crisis in the US credit markets but warned that the government should not bail out homeowners or lenders who acted irresponsibly.

The Republican presidential candidate said assistance to the financial sector should be based solely on tackling systemic risks and that speculators and second homeowners should be excluded from any aid to homeowners.

"I will not play election-year politics with the housing crisis," said Mr McCain. "It's not the job of government to bail out and reward those who act irresponsibly, whether they're big banks or small borrowers."

The senator's hands-off approach contrasted sharply with calls from his Democratic rivals for greater government intervention to stem the rising tide of housing foreclosures in the US.

On Monday, Hillary Clinton, the Democratic presidential hopeful, proposed a $30bn aid package for homeowners facing imminent repossession, highlighting how the housing crisis is rising towards the top of the election agenda.

Mrs Clinton yesterday likened Mr McCain to Herbert Hoover, the president who led the US into the Great Depression, warning of a "downward spiral" if the government failed to take decisive steps to ease the financial turmoil.

Doug Holtz-Eakin, senior policy adviser to Mr McCain, described Mrs Clinton's proposal as a $30bn "slush fund" that would do little to ease the crisis.

Mr McCain's remarks came in a high-profile speech to business leaders in California that was designed in part to quash doubts about his economic expertise.

The Arizona senator has acknowledged that he knows less about the economy than defence and foreign policy -- an admission that could prove costly as polls show voters becoming increasingly focused on the economy ahead of November's election.

Mr McCain vowed to consider "any and all proposals" to solve the credit crunch and promised to "not allow dogma to override common sense".

But he said that measures to help the estimated 4m US homeowners at risk of foreclosure should not penalise the 51m households with healthy mortgages and must be accompanied by reforms to prevent a repeat of the crisis.

He said years of rising house prices had made lenders and homeowners complacent, while the increasing complexity of global financial markets made it difficult to quantify risk. "Capital markets work best when there is both accountability and transparency," he said. "In the case of our current crisis, both were lacking."

In one of the few firm proposals contained in the speech, Mr McCain called for a meeting of US accounting professionals to resolve uncertainty surrounding valuation of housing-related assets and for a similar gathering of mortgage lenders to agree steps to help families keep their homes.

"They've been asking the government to help them out," he said, referring to lenders. "I'm now calling upon them to help their customers and their nation."

Mr McCain voiced opposition to Democratic proposals to lower the down payment requirement on mortgages provided by the Federal Housing Authority and said Fannie Mae and Freddie Mac, the government-backed mortgage lenders, should tighten lending policies once conditions return to normal.

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