Scary Economics

During the Republican debate at the Reagan Library, John McCain was asked:

[Do] you have a plan to help people with bad credit get lower interest rates so they can keep those homes and avoid foreclosure[?]

Any answer to that other than “No,” “What?”, or “Why?” demonstrates a misunderstanding of how we got to where we are economically and how we’re going to get back out. The private sector – the free market – actually goofed. Big time. It made lots of loans to people who couldn’t pay them back, then loaned out those loans and made still more loans on the backing of those meta-loans. It’s precisely the availability of unreasonably low interest rates to high-risk borrowers that created the housing bubble and that is currently bursting it. Worse still, in order to get out, we are going to have to deal with that fact and let private industry take the hit, at least to some extent. The last thing we can do is force banks to take on more bad debts – debts which are already in or near default – and take them for longer term. Even if there’s no forcing, but only incentivizing through government aid, we are doing nothing but encouraging more risky behavior and trying to put duct tape on the bubble.

McCain’s answer started out:

Yes, and it’s tough and it’s tough here in California, it’s tough in Arizona, it’s tough particularly all over, but it’s very tough particularly in the high growth states.

McCain is a good man, but he is not a conservative, and he has no idea how to lead this country back to financially solid ground.