Candidates Keep Tight Focus on the Economy

SEN. JOHN MCCAIN (R), Arizona: Home ownership is part of the American dream, as we all know. And we want as many Americans as possible to be able to afford their own home.

But in the process of a huge and largely positive upturn in home construction and ownership, a housing bubble was created. A bubble occurs when prices are driven up too quickly; speculators move into markets; and these players begin to suspend the normal rules of risk and assume that prices can only move up, but never down.

We've seen this kind of bubble before. In the late 1990s, we had the technology bubble, when money poured into technology stocks and people assumed that those stock values would rise indefinitely.

Between 2001 and 2006, housing prices rose by nearly 15 percent every single year. The normal market forces of people buying and selling their homes were overwhelmed by rampant speculation. Our system of market checks and balances didn't correct this until the bubble burst.

A sustained period of rising home prices made many home lenders complacent, giving them a false sense of security and causing them to lower their lending standards. What started as a problem in subprime loans has now convulsed the entire financial system.

My friends, let's start with some straight talk. I will not play election-year politics with the housing crisis. I will evaluate everything in terms of whether it might be harmful or helpful to our effort to deal with the crisis we face now.

I've always been committed to the principle that it's not the duty of government to bail out and reward those who act irresponsibly, whether they're big banks or small borrowers. Government assistance to the banking system should be based on solely preventing systemic risk that would endanger the entire financial system and the economy.

In our effort to help deserving homeowners, no assistance should be given to speculators. Any assistance for borrowers should be focused solely on homeowners, not people who bought houses for speculative purposes to rent or as second homes. Any assistance must be temporary and must not reward people who were irresponsible at the expense of those who weren't.

I will consider any and all proposals based on their cost and benefits. In this crisis, as in all I may face in the future, I will not allow dogma to override common sense.

Our financial market approach should include encouraging increased capital and financial institutions by removing regulatory, accounting, and tax impediments to raising capital. I am prepared to examine any new proposals and evaluate them based on these principles.

But I think we need to do two things right away: First, it's time to convene a meeting of the nation's accounting professionals to discuss the current mark-to-market accounting systems.

We're witnessing an unprecedented situation, as banks and investors try to determine the appropriate value of the assets they're holding, and there's widespread concern that this approach is exacerbating the credit crunch.

We should also convene a meeting of the nation's top mortgage lenders -- the top mortgage lenders in this country, working together. They should pledge to provide maximum support and help to their cash-strapped, but credit-worthy customers. They should pledge to do everything possible to keep families in their homes and businesses growing.

You may recall that, immediately after Sept. 11, 2001, General Motors stepped in to provide 0 percent financing as part of keeping the economy growing. We need a similar response by the mortgage lenders.

They've been asking the government to help them out. I'm now calling upon them to help their customers and their nation. It's time to help American families.

SEN. BARACK OBAMA (D), Illinois: As most experts agree, our economy is in a recession. To renew our economy and to ensure that we are not doomed to repeat a cycle of bubble and bust again and again and again, we need to address not only the immediate crisis in the housing market; we also need to create a 21st-century regulatory framework; and we need to pursue a bold opportunity agenda for the American people.

Most urgently, we have to confront the housing crisis. Over 2 million households are at risk of foreclosure. Millions more have seen their home values plunge. Many Americans are walking away from their homes, which hurts property values for entire neighborhoods and aggravates the credit crisis.

To stabilize the housing market and to help bring the foreclosure crisis to an end, I've sponsored Senator Chris Dodd's legislation creating a new FHA housing security program, which will provide meaningful incentives for lenders to buy or refinance existing mortgages. This will allow Americans facing foreclosure to keep their homes at rates that they can afford.

Now, Senator McCain argues that government should do nothing to protect borrowers and lenders who've made bad decisions or taken on excessive risk. And on this point, I agree.

But the Dodd-Frank package is not a bailout for lenders or investors who gambled recklessly. They will take their losses. It's not a windfall for borrowers, as they will have to share any capital gain.

Instead, it offers a responsible and fair way to help bring an end to the foreclosure crisis.

It asks both sides to sacrifice, while preventing a long-term collapse that could have enormous ramifications for the most responsible lenders and borrowers, as well as the American people as a whole. That's what Senator McCain ignores.

For homeowners who were victims of fraud, I've also proposed a $10 billion foreclosure prevention fund that would help them sell a home that is beyond their means or modify their loan to avoid foreclosure or bankruptcy.

It's also time to amend our bankruptcy laws so families aren't forced to stick to the terms of a home loan that was predatory or unfair.

But beyond dealing with the immediate housing crisis, it is time for the federal government to revamp the regulatory framework dealing with our financial markets.

Our capital markets have helped us build the strongest economy in the world. They are the source of competitive advantage for our country. But they cannot succeed without the public's trust.

The details of regulatory reform should be developed through sound analysis and public debate, and so I won't try to cross every t and dot every i in this speech. But there are several core principles for reform that I intend to pursue as president.

First, if you can borrow from the government, you should be subject to government oversight and supervision.

Secretary Paulson admitted this in his remarks yesterday. The Federal Reserve should have basic supervisory authority over any institution to which it may make credit available as a lender of last resort.

When the Fed steps in, it is providing lenders an insurance policy underwritten by the American taxpayer. In return, taxpayers have every right to expect that these institutions are not taking excessive risks.

The nature of regulation should depend on the degree and extent of the Fed's exposure. But at the very least, these new regulations should include liquidity and capital requirements.

We need policies that once again recognize that we are in this together and we need the most powerful, the wealthiest among us -- those who are in attendance here today -- we need you to get behind that agenda.

It's an agenda that starts with providing a stimulus that will reach the most vulnerable Americans, including immediate relief to areas hardest hit by the housing crisis, and a significant extension of unemployment insurance for those who are out of work.

If we can extend a hand to banks on Wall Street when they get into trouble, we can extend a hand to Americans who are struggling often through no fault of their own.

JUDY WOODRUFF: The candidates are certainly to continue to emphasize the economy on the stump, as voters grow increasingly concerned about their financial well-being.

And you can read the full transcripts of the candidates' speeches on the economy on our Web site. That's at PBS.org.