Obama rejects McCain's mortgage buyup plan

updated 4:39 p.m. ET Oct. 8, 2008

INDIANAPOLIS - Democrat Barack Obama's campaign criticized John McCain's mortgage bailout plan Wednesday, saying it would cause the government to lose money by paying too much for bad loans.

McCain's proposal to spend $300 billion in federal funds to buy distressed mortgages was a highlight of Tuesday's presidential debate, and it seemed to catch Obama off guard. At first, Obama's campaign said he had made similar proposals and there was nothing new in McCain's remarks.

But after McCain aides offered more details Wednesday, Obama's campaign shifted gears.

The plan would cause the government "to massively overpay for mortgages in a plan that would guarantee taxpayers lose money, and put them at risk of losing even more if home values don't recover," Obama economic adviser Jason Furman said in a statement. "The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud."

The statement did not detail why the plan would fail. Some mortgage officials, however, say the great majority of bad loans are owned by large pools of investors who would sell them only at prices much higher than their current worth.

If McCain's plan would have the government pay all or most of the difference between a home loan's original value and its renegotiated lower value, as these officials understood it to do, it could prove costly.

McCain's proposal would devote nearly half the $700 billion from the recent financial rescue package to buying troubled mortgages directly, rather than indirectly aiding the nation's financial markets.

Speaking to several thousand people in Indianapolis on Wednesday, Obama criticized McCain's health care and economic positions, but did not mention the new mortgage proposal.

Obama urged Americans not to panic over the faltering economy, saying "there are better days ahead" — especially if he is elected president. He acknowledged public anxiety over the financial crisis in starker terms than usual.

"We meet at a moment of great uncertainty for America," he said. "But this isn't a time for fear or panic. This is a time for resolve and leadership. I know that we can steer ourselves out of this crisis."

Video McCain: 'Who is ready to lead?' Oct. 8: John McCain says that his experience in government and life would make him a more reliable leader for America, and a better commander in chief. MSNBC

Obama ridiculed McCain for recently saying "the fundamentals of our economy are strong." But in his 35-minute speech on a muddy harness-racing track, he made a similar argument.

"America still has the most talented, most productive workers of any country on Earth," Obama said. "We're still the home to innovation and technology, colleges and universities that are the envy of the world. Some of the biggest ideas in history have come from our small businesses and our research facilities."

Obama repeated his claims that McCain's proposals would cause many Americans to lose their employer-provided health insurance because the Republican would tax those benefits. He said the $5,000 tax credit that McCain would give people would not be enough for them to buy private insurance, a claim that McCain disputes.

Video Obama: 'Better days are ahead' Oct. 8: Remarking that "our destiny is not written for us, it is written by us," Barack Obama says that Americans will rise to face and beat the economic crisis. MSNBC

"The American people can't take four more years of John McCain's George Bush policies," Obama said to loud cheers.

Obama praised the Federal Reserve and other leading central banks for cutting interest rates Wednesday. "I support that action," he said. "This is a global problem and it needs to be solved through a global effort."

He again vowed that only those making more than $250,000 a year would see higher taxes under his administration, and 95 percent of Americans would receive tax cuts. He promised to spend $15 billion a year "in renewable sources of energy to create 5 million new, green jobs over the next decade."

Obama read his speech from a TelePrompTer, his habit in recent weeks. He strayed from the prepared text, however, to mention GOP vice presidential nominee Sarah Palin, the Alaska governor who has led her ticket's attacks on Obama.

McCain "and Gov. Palin are out there saying all kinds of stuff," Obama said.

Indiana is normally a solidly Republican state at the presidential level, but polls here suggest a close race.

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