Senator McCain’s plan for a $300 billion dollar government foray into the housing market to purchase failed mortgages indicates he understands neither the economy nor capitalism. McCain’s biggest concern is the dramatic drop in home prices.

He believes that socializing the housing market will save it from a much needed price correction. If the falling prices of homes is the concern, what will purchasing these mortgages and then re-negotiating a new lower mortgage do to the home values except vindicate that the market is correct?

The plan will only validate that the houses are, indeed, worth less. Why else would you need to re-negotiate a lower mortgage? What about the other home owners who are capable of paying their mortgages and do so faithfully? Why should they be saddled with the burden of subsidizing their neighbor’s home?

When did we decide that the average American home owner deserves this punishment because they are able to keep their commitment to paying their own debts? McCain argues that he is actually helping these honest home owners because no one wants a vacant house next door.

What McCain doesn’t understand is that vacant houses arise from a combination of two market forces: over supply and over pricing. Left to itself, the market will correct. Housing supply will contract as the population grows or investors move in to purchase rental property and prices will adjust to what the market will bare. No socialist program can cheat the market. McCain’s program will do more harm than good because money from investors will be hesitant to enter a market that is being influenced by government interference.

What investor wants to enter the market when they can’t tell where the bottom is or what the government is going to do? Who wants to invest in housing when tomorrow, the government might forgive twenty percent of home prices to everyone in the neighborhood but them, leaving them with an overpriced house and worse, sticking them with the cost of the program?

It makes no sense.

McCain might have scored a few points in last night’s debate, but in the end, he can’t rely on the fear of Obama alone as the only compelling reason for conservatives to vote for him.

The GOP needs to find its roots quickly. 2012 will be here before they know it.

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