We'll Protect Taxpayers From More Bailouts

By JOHN MCCAIN and SARAH PALIN

September 9, 2008; (WSJ) Page A25

The bailout of Fannie Mae and Freddie Mac is another outrageous, but sadly necessary, step for these two institutions. Given the long-term mismanagement and flawed structure of these two companies, this was the only short-term alternative for ensuring that hard-working Americans have access to affordable mortgages during this difficult economic period.

We are strong advocates for the permanent reform of Fannie and Freddie. For years, Congress failed to act and it is deeply troubling that what we are now seeing is an exercise in crisis management rather than sound planning, and at great cost to taxpayers.

We promise the American people that our administration will be different. We have long records of standing up to special interests and providing the leadership to change government and make it more accountable to the American taxpayer. In our administration, every agency and department will undergo rigorous oversight and review. We will require the highest standards of accounting, reporting and transparency ever demanded in government.

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.

Lenders who initiate loans will be held accountable for the quality and performance of those loans, and strict standards must be required in the lending process. Every lender must be required to meet the highest standards of ethical behavior, with recourse if they do not perform.

Reforms are necessary now to make mortgage lending and banking organizations more transparent. We will require greater disclosure, so that complex derivative instruments and excessive leverage can't put the marketplace, and the financial security of your home, at risk.

We will push the nation's top mortgage lenders to provide maximum support to help cash-strapped, but credit-worthy customers. Lenders should do everything possible to keep families in their homes and business growing.

Fixing Fannie and Freddie, and reforming our mortgage and financial markets, is critical to getting the housing market and the entire economy moving again. A great deal of the savings and wealth of American families is wrapped up in the value of their homes. A house has traditionally been the wealth-building course to retirement. The housing industry employs millions of Americans. One of us, John McCain, said over two years ago, "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose."

Fannie and Freddie's lobbyists succeeded and Congress failed. Under our administration this will not happen again.

In the first 100 days of our administration, we will look at every agency and department and expenditure of the federal government and ask this simple question: Is it serving the needs of the taxpayer? If it is not, we will reform it or shut it down, and we will spend money only on what is truly in the interest of the American people.

Mr. McCain and Mrs. Palin are, respectively, the Republican candidates for president and vice president.

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