(Reuters) - Presidential candidates John McCain and Barack Obama reacted cautiously on Saturday to reports that mortgage finance companies Fannie Mae and Freddie Mac were set to be placed under federal control.
The U.S. Treasury Department plan would place the two government-sponsored enterprises into federal conservatorship. Fannie Mae and Freddie Mac own or guarantee almost half of the country’s $12 trillion in outstanding home mortgage debt.
McCain, the Republican presidential nominee and an Arizona senator, would support a short-term solution that would keep any trouble at the companies from spreading further to financial markets, an adviser said. In the long-term, he supports privatization of the groups.
Obama, the Democratic nominee and an Illinois senator, said he would judge any bailout plan on a handful of criteria including whether it would strengthen the U.S. economy, protect taxpayers, and clarify “the true public and private status of our housing policies.”
Below are the candidates’ detailed responses:
When asked about putting the two enterprises into government receivership, McCain told the CBS television program “Face the Nation” it was a necessary step.
“I think it has to be done,” McCain said. “I think that we’ve got to keep people in their homes. There’s got to be restructuring, there’s got to be reorganization, and there’s got to be some confidence that we’ve stopped this downward spiral.
“It’s hard, it’s tough, but it’s also the classic example of why we need change in Washington. It’s an example of cronyism, special interest, lobbyists, a quasi-governmental organization where the executives were making hundreds of, some billion dollars a year while things were going downhill, going to hell in a hand-basket.”
McCain said he spoke with Treasury Secretary Henry Paulson.
“I did have a long conversation with Secretary Paulson, a man I admire and respect, and he did say, that when the housing market starts back up, and it will ... then the taxpayers are going to be the first to be paid off.”
McCain’s vice presidential running mate, Alaska Gov. Sarah Palin, addressed the issue at a rally in Colorado Springs.
“The fact is that Fannie Mae and Freddie Mac have gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help,” she said.
Economic adviser Douglas Holtz-Eakin said: “Over the long haul, (McCain) believes we should downsize and privatize them so that they’re not a risk to the American taxpayer.”
In an interview with ABC News’ George Stephanopoulos, Obama said, “I’m inclined to support some form of intervention to prevent a long-term, much bigger crisis.”
He also released a statement saying he was watching the situation carefully:
“I’ll evaluate whatever plan is put forth by this administration with the following three benchmarks:
“First, any action we take must be focused not on the whims of lobbyists and special interests worried about their bonuses and hourly fees, but on whether it will strengthen our economy and help struggling homeowners who are also being hit by lost jobs, stagnant wages and spiraling costs for everything from gas to groceries.
“Second, we must protect taxpayers, not bail out the shareholders and management of Fannie Mae and Freddie Mac. This is a challenging situation, and there are some community and regional banks, including those serving low-income communities, that we need to carefully address. But we must not allow government intervention to protect investors and speculators who relied on the government to reap massive profits.
“Finally, we must ensure that any plan clarifies the true public and private status of our housing policies. We need to make clear that in our market system, investors must not be allowed to believe that, unlike working families, they can simply invest in a “heads they win, tails they don’t lose” context.
Compiled by Jeff Mason