Mr McCain said taxpayers would be repaid through rising housing prices once the market stabilised. -- ASSOCIATED PRESS
ALBUQUERQUE (New Mexico) - REPUBLICAN presidential hopeful John McCain backed a government takeover of two mortgage giants on Saturday while his Democratic rival warned that taxpayers should not bail out their shareholders.
Asked whether Freddie Mac and Fanny Mae - which underwrite millions of US mortgages - should be placed in a conservatorship, Mr McCain said 'I think it has to be done.'
Plan won't help shareholders
WASHINGTON - Fannie Mae and Freddie Mac shareholders, including preferred stockholders, will not fair well under a proposed US Treasury takeover of the two housing finance companies, House Financial Services Committee Chairman Barney Frank told Reuters on Saturday.
'I think all shareholders will be disadvantaged,' Mr Frank said in a Reuters interview when asked if holders of preferred stock of the government sponsored enterprises could also be wiped out along with common stockholders under the Treasury plan.
'We've got to keep people in their homes,' Mr McCain told Face the Nation in an interview set to be broadcast on Sunday.
But he said the temporary takeover should not be a blank cheque to the executives who were paid massive salaries while they mismanaged the mortgage giants.
'There's got to be restructuring, there's got to be reorganisation, and there's got to be some confidence that we've stopped this downward spiral,' Mr McCain said.
'This is the kind of cronyism, corruption, that's made people so justifiably angry.'
Fannie Mae and Freddie Mac are government-chartered, shareholder-owned firms which own or guarantee nearly half of the nation's mortgages totalling more than US$5 trillion (S$7 trillion).
They buy mortgages from smaller institutions, repackage them and resell them as securities: a critical function in keeping liquidity in the housing market.
They have been whipsawed by the financial meltdown and foreclosure crisis of the past year, losing some 90 per cent of their value on fears of losses from mortgage defaults.
A law enacted in July gave the US government the authority to buy shares or offer liquidity to the companies to keep them afloat in order to avert what some fear could be a major shock to an already fragile global financial system.
A conservatorship would mean the value of the company's common stock would be diminished but not liquidated while the holdings of other securities, including company debt and preferred shares, would be protected by the government.
Democratic White House hopeful Barack Obama called the situation 'extremely serious' but said '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.'
'We must not allow government intervention to protect investors and speculators who relied on the government to reap massive profits,' Mr Obama said in a statement.
'We must protect taxpayers, not bail out the shareholders and management of Fannie Mae and Freddie Mac.'
Mr McCain said taxpayers would be repaid through rising housing prices once the market stabilised.
His running mate hinted at the type of reform Mr McCain would implement if he wins the November 4 election.
'They're too big and too expensive to the taxpayers,' Mrs Palin said at a rally in Colorado.
'A McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help.' -- AFP
