In Green Bay, Wis., on Friday, Sen. John McCain (R-Ariz.) proposed a six-point plan, including additional regulation, for coping with the meltdown of the mortgage market and its disastrous fallout on Wall Street:
1) First, to deal with the immediate crisis, I will lead in the creation of the Mortgage and Financial Institutions trust -- the MFI. The underlying principle of the MFI or any approach considered by Congress should be to keep people in their homes and safe guard the life savings of all Americans by protecting our financial system and capital markets. This trust will work with the private sector and regulators to identify institutions that are weak and fix them before they become insolvent.
The MFI is an early intervention program to help financial institutions avoid bankruptcy, expensive bailouts and damage to their customers. This will get the Treasury and other financial regulatory authorities in a proactive position instead of reacting in a crisis mode to one situation after another.
The MFI will restore investor and market confidence, build sound financial institutions, assist troubled institutions and protect our financial system while minimizing taxpayer exposure. This is an important step, but it is not enough. I will also take the additional actions needed to make sure a crisis like this is never allowed to build and break over the American people again.
2) Second, I will propose and sign into law reforms to prevent financial firms from concealing their bad practices. An inexcusable lack of financial transparency allowed Wall Street firms to engage in reckless behavior that padded their profits and fattened executive bonuses when times were good, but now imperil the financial security of millions of Americans when their bets turned sour.
So much of the damage to our economy could have been avoided if these practices had been exposed to the light of day. Americans have a right to know when their jobs, pensions, IRAs, investments, and our whole economy are being put at risk by the recklessness of Wall Street. And under my reforms for the financial sector, that fundamental right will be protected.
3) Third, we need regulatory clarity. The lack of transparency in our financial markets went unnoticed by the regulatory agencies scattered throughout Washington charged with protecting the common good. We've got the SEC, the FDIC, the CFTC, the SIPC, the OCC, the Fed. At best, this confusing assortment of regulators and institutions was egregiously lax in carrying out their responsibilities. At worst, they engaged in the old Washington game of guarding their bureaucratic turf, instead of safeguarding the public interest and protecting investors.
Many in the financial services industry also either forgot or neglected their duty to act ethically and honorably. This shortcoming was aided and abetted by the creation of financial instruments that allowed lenders to escape any responsibility for the risk of their loans. In the past, lenders had to pay a price if they made a bad loan. Today, Fannie Mae and Freddie Mac worked with Wall Street to bundle together all these dicey subprime loans and then pushed them off on investors who didn't have the tools of transparency needed to assess or even understand the risk.
The current system promotes confusion, encourages bureaucratic infighting and creates incentives for financial firms to cut corners. We need to enhance regulatory clarity by holding the same financial activity to one regulatory standard. We don't need a dozen federal agencies doing the job badly -- we need the best federal agencies to do the job right.
4) Fourth, we must ensure that consumers and investors are protected. Our regulatory system must protect consumers and investors by punishing individuals who engage in fraud, break contracts, or lie to customers -- like the predatory lenders who know you can't afford an adjustable rate mortgage, but mislead you into signing one. These actions are criminal and the people who commit them should be behind bars.
And corporate governance rules will be reformed so that shareholders have a clear say in determining the pay of CEOs and other senior executives. On my watch, the consequences for corporate abuse will not be more enrichment, but more likely an indictment.
5) Fifth, in cases where failing companies seek taxpayer bailouts, the Treasury Department will follow consistent policies in deciding whether to guarantee loans. It must have well developed remedies for a financial crisis. With billions of dollars in public money at stake, it will not do to keep making it up as we go along.
Finally, the Federal Reserve should get back to its core business of responsibly managing our money supply and inflation. It needs to get out of the business of bailouts. The Fed needs to return to protecting the purchasing power of the dollar. A strong dollar will reduce energy and food prices. It will stimulate sustainable economic growth and get this economy moving again.
Here are details from the McCain campaign about the formation of a Mortgage and Financial Institutions Trust (MFI), which the campaign called a vital element in managing the current financial crisis:
The Purpose Of The Mortgage And Financial Institutions Trust (MFI):
The MFI Is An Early Intervention Mechanism That Will Help Financial Institutions Avoid Bankruptcy And Expensive Bailouts While Protecting Their Customers. The MFI will minimize the use of taxpayer money by having an orderly process to address the market crisis. Working with the private sector and regulators, the MFI will help identify troubled institutions and take action to strengthen them before they become insolvent.
The MFI Will Provide Troubled Institutions With An Orderly Process To Identify Bad Loans, Provide Funding And Eventually Sell Them At A Profit. This will get the Treasury and other financial regulators in a proactive position instead of reacting to one troubled institution after another.
The Structure Of The Mortgage And Financial Institutions Trust (MFI):
The MFI Will Be Part Of The U.S. Department Of The Treasury. The MFI will be managed by a board of directors consisting of at least the Secretary of the Treasury, Federal Reserve Chairman, Chairman of the FDIC and two public members. The Secretary of the Treasury will be Chairman of the Board. Under the MFI process:
Troubled institutions will voluntarily come to the MFI.
The MFI will provide liquidity loans at reasonable interest rates. The MFI will receive warrants for controlling interest in troubled institutions.
Troubled financial institutions that enter the MFI will keep operating as private companies with the help of the MFI.
The MFI will supervise the sale of loan assets at market prices and purchase them as necessary.
The MFI will eventually, and at its discretion, sell the loans to the private sector.
The MFI will have a predetermined tenure during which to dispose of the loans.
The MFI will return all profits to the U.S. Department of the Treasury and taxpayers.
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McCain unveils market plan
By POLITICO STAFF | 9/19/08 9:43 AM EDT
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