In his speech in Albuquerque, NM, later today, Sen. John McCain, R-Ariz., will depict Sen. Barack Obama, D-Ill., as an advocate of subprime loans.
"As recently as September of last year (Obama) said that subprime loans had been, quote, ‘a good idea,’" McCain will say, according to prepared remarks provided by his campaign. "Well, Senator Obama, that ‘good idea’ has now plunged this country into the worst financial crisis since the Great Depression."
The actual quote from Obama from last September has a slightly more complex context.
In that September 17, 2007 speech — titled "Our Common Stake in America’s Prosperity — Obama criticized the "dangerous erosion of the rules and principles that have allowed our market to work and our economy to thrive." He said that dynamic reared its head "during the Enron and WorldCom scandals …and we cannot help but see some reflections of these practices when we look at the subprime mortgage fiasco today."
Obama said that "subprime lending started off as a good idea — helping Americans buy homes who couldn’t previously afford to. Financial institutions created new financial instruments that could securitize these loans, slice them into finer and finer risk categories and spread them out among investors around the country and around the world. In theory, this should have allowed mortgage lending to be less risky and more diversified."
But then, Obama said, something went wrong.
"As certain lenders and brokers began to see how much money could be made, they began to lower their standards," Obama said. "Some appraisers began inflating their estimates to get the deals done. Some borrowers started claiming income they didn’t have just to qualify for the loans, and some were engaging in irresponsible speculation. But many borrowers were tricked into glossing over the fine print. And ratings agencies began rating bundles of different kinds of these loans as low-risk even though they were very high-risk. Most everyone knew that some of these deals were just too good to be true, but all that money flowing in made it tempting to look the other way and ignore the unscrupulous practice of some bad actors…Repeated calls for better disclosure and stronger oversight were met with millions in mortgage industry lobbying. Far too many continued to put their own short-term gain ahead of what they knew the long-term consequences would be when those rates exploded."