Last week, Senator John McCain shocked many observers when he offered a plan for the federal government to purchase mortgages of distressed homeowners and to reissue those mortgages under more favorable terms. It should not surprise you that this plan sounds more like something a Democrat would sponsor. In fact, Senator Hillary Clinton proposed this idea during the bailout deliberations, and McCain acknowledged borrowing it from her. Obama has dismissed the plan as too costly and as a gift to banks.
Well, now Obama, the other presidential candidate, has selected goodies from Clinton's economic playbook. Today, he proposed a 90-day moratorium on mortgage foreclosures for banks participating in the bailout. In January, Clinton proposed a 90-day moratorium on foreclosures for subprime, owner-occupied homes, as part of a comprehensive economic package containing several measures designed to stem the rash of foreclosures. Obama slammed this plan, saying that it could have a "disastrous" effect on the economy. Many economists also rejected the proposal.
McCain's campaign and the Republican Party have picked up on the apparent contradiction in Obama's mortgage proposal and his harsh criticism of Clinton's plan. In response to Republican allegations that he has flip-flopped, Obama has said that the "disastrous" comment referred to a Clinton proposal to freeze interest rates, not the foreclosure moratorium. But many media outlets reported that Obama condemned Clinton's moratorium proposal, and he in fact laced his website with economists' critiques of the plan.
My take: This is a flip-flop, but it also is not (spoken like a true lawyer). Clearly, Obama harshly criticized Clinton's economic policy during the Democratic primaries; that's what politicians do. Clearly, Obama, like McCain, is now borrowing Clinton's proposals -- even if they seem to go against his prior positions. Obama can distinguish his plan, however, because it only applies to financial institutions that participate in the bailout. But this (not the flip-flop) is actually the greatest problem with Obama's proposal from my perspective: it does not go far enough in helping homeowners. Many banks that hold mortgages of distressed homeowners will not participate in the bailout. Obama's proposal, unlike Clinton's or McCain's, would do nothing for those individuals. Thus, Obama's mortgage-bailout plan would reach far fewer borrowers than the one proposed by Clinton and his Republican counterpart. In fact, during the Democratic primaries, some liberal economists chided Obama for offering proposals that did not do enough to help homeowners.