“We can’t allow the auto industry simply to vanish,” he said. “[But] we can’t just write a blank check … Taxpayers can’t be expected to pony up more money for an auto industry that has been resistant to change.”

Resistant indeed. For decades, the industry fought efforts to hike the fuel-economy of their vehicles. That opposition allowed the companies to continue producing the gas-gulping SUVs that were so popular for most of the last decade, but it’s put them at a stark disadvantage as consumers have moved toward more efficient cars.

The heads of the automakers were on Capitol Hill last week begging for $25 billion in emergency loans, but many lawmakers were less than impressed with their pitch. Some said they appeared arrogant, even as they were shaking their tin cup. Obama said he was “surprised” that the executives had no specific plan for spending the cash. He said congressional leaders “did the right thing” in asking the companies to come up with such a strategy and present it to Congress for consideration.

That plan is due to reach congressional leaders Dec. 2. Time will tell how far the Big Three are willing to bend — and whether Republicans are willing to do the same.

It would not be such a bad idea for Wall Street to do the same now.

There are plenty of quality community colleges, for example, and there’s probably still time to sign up for a course each week in understanding investments.

Tanta at Calculated Risk – a mortgage broker by trade – has some additional thoughts on this. She’s among a growing number of people calling for the bailout to include some punitive measures for Wall Street, or some provisions to help homeowners.

One would be to allow bankruptcy judges to modify mortgage loans — so the borrower would owe the fair-market value on the home, not the inflated loan amount.

Here’s Tanta:

What I really really like is the idea of subjecting CEOs to the same petty humiliation everyone else gets treated to. I suggest that for every separate asset these CEOs sell to the government, they be required to write a Hardship Letter over a 1010 warning (that’s a reference to the statute forbidding lying in order to get a loan) explaining why they acquired or originated this asset to begin with, what’s really wrong with it in detail, what they have learned from this experience, and what steps they are taking to make sure it never happens again.

Furthermore, the Treasury Dept. will empanel a committee of the oldest, most traditional, and bitterest mortgage-loan underwriters — preferably those downsized to make way for automated underwriting systems — to review these letters and opine on their acceptability.

Look for more calls for Wall Street to take some hits in return for $700 billion from taxpayers.

Plenty of prominent voices – Paul Krugman among them – are concluding it’s a big blank check for Wall Street that does nothing to help the average homeowner facing foreclosure.

You would expect a populist backlash for any sort of effort to prop up investment banks with taxpayer money. But there’s more to the objections. They’re also coming from financial experts and observers who don’t usually rail about the unfairness of the system when it comes to the mortgage mess.

Here’s the opinion of Calculated Risk, the most influential financial blog on the Internet:

The current plan is vague, opaque, has almost no oversight, puts the taxpayers at extreme risk and encourages future moral hazard. A better plan would be transparent (all deals would be publicized), involve a share in ownership for the taxpayers, and have substantial oversight. We can do better.

We’ll all find out this week whether the sense of urgency in avoiding a global meltdown — the thinking behind the Treasury Dept. plan — will outweigh these growing objections.

Yearnings for an “RTC-type solution” that could hold failing mortgages over the long term have been bandied around on Wall Street and in Congress for months. But the real RTC was nothing like the current buzz.

Illustration by: Matt Mahurin

First of all, the RTC was not a bailout for anyone, and did not buy up bad mortgages from operating banks. A stiff increase in regulatory capital requirements for savings and loans by the Financial Institutions Recovery, Reform and Enforcement Act of 1989, or FIRREA, triggered the insolvency of a large swathe of the S&L industry.

The insolvencies were intentional, FIRREA was expressly a punitive measure, passed in a mood of anger and revulsion at the fecklessness and sheer criminality of so many S&Ls

The RTC was created to sell bonds that would finance the FDIC’s deposit insurance obligations and sell off the assets of the failed S&Ls, which were mostly commercial mortgages. These were assets that the government already owned, as a consequence of paying off depositors. They were not “purchased” from banks.

The head of the RTC, a hard-driving former airline executive, Albert V. Casey, decided that a huge overhang of commercial mortgages on government books could depress property markets for years.

So he packaged them up into large pools –- essentially inventing the Commercial Mortgage Backed Security, or CMBS –- and sold them off in a fire sale that lasted for about two years.

The big Wall Street banks and other investors, like the Bass Bros., made large profits on the sales. Once the RTC portfolio had been cleaned out, commercial property markets sustained a strong recovery.

Wall Street is clearly hoping for a friendly government to reliquify bank books by buying up underwater mortgages at friendly prices, and then holding them for the long term. That may or may not be a good idea. But it has nothing to do with the RTC.

Charles R. Morris, a lawyer and former banker, is the author of “The Trillion Dollar Meltdown: Easy Money, High Rollers and the Great Credit Crash.” His other books include “The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould and J.P. Morgan Invented the American Supereconomy” and “Money, Greed, and Risk: Why Financial Crises and Crashes Happen.”

Holtz-Eakin: McCain helped create BlackBerry

Asked what work John McCain did as chairman of the Senate Commerce Committee that helped him understand the financial markets, the candidate’s top economic adviser wielded visual evidence: his BlackBerry.

“He did this,” Douglas Holtz-Eakin told reporters this morning, holding up his BlackBerry. “Telecommunications of the United States is a premier innovation in the past 15 years, comes right through the commerce committee so you’re looking at the miracle John McCain helped create and that’s what he did.” Al Gore, call your office.

The Obama campaign sent around the article on Tuesday morning with a terse response: “um, what?”

Within the hour, chief spokesperson Bill Burton released a statement putting the falsehood in context: “If John McCain hadn’t said that ‘the fundamentals of our economy are strong’ on the day of one of our nation’s worst financial crises, the claim that he invented the BlackBerry would have been the most preposterous thing said all week.”

Now let’s briefly correct this latest McCain campaign whopper.  McCain did not “help create” the “miracle” of the BlackBerry — he does not even know how to use email or a computer.  The U.S. Senate Commerce Committee was not even pivotal: the BlackBerry was invented by a Canadian company, Research In Motion.

So this claim is false and absurd, obviously, and it may seem like a distraction from the current debate over the candidates’ economic agendas.

Reporters have a reason to press McCain on his campaign’s latest falsehood, however, because voters have a right to know how often his campaign distorts and lies — on issues large and small — and how often McCain stands by his operatives’ lies (taxes) or abandons them under pressure (like the lipstick ploy).

It seems like the only time McCain is a “maverick” nowadays is when it comes to his relationship with the truth.

Housing Wire reports that advocates are pushing the two mortgage giants to follow the lead of the Federal Deposit Insurance Corp., which is attempting an en mass modification of loans to borrowers from IndyMac. The FDIC this summer took over IndyMac, a subprime lender, in one of the nation’s largest bank failures.

The FDIC effort is being closely watched by the lending industry and by housing advocates. Our story this week explained that while the government is pushing private industry to do loan workouts through efforts like Hope Now, there hasn’t been much real progress made. FDIC Chairwoman Sheila Bair is an advocate of doing more mass restructurings.

According to Housing Wire, Bruce Marks, chief executive officer of the Neighborhood Assistance Corp. of America, which has been battling banks for years, is behind the pressure on Fannie and Freddie. From Housing Wire:

“Look what Sheila Bair’s doing — she’s walking the walk, as well as talking the talk,” Marks told Amercan Banker. “Now we need Secretary Paulson to walk the walk, as well as talk the talk.”

NACA, as we reported, also launched an effort this week in 40 cities to do loan restructurings on a large scale and to pressure servicers and lenders to follow through on them.

Not surprisingly, the lending industry isn’t exactly enthusiastic — since genuine loan restructurings mean lowering the principal and interest rate and taking losses. But with the government increasingly involved in the mortgage markets, it won’t be so easy for Treasury Sec. Henry Paulson Jr. and the Bush administration just to urge private industry to do more workouts as a solution to the mortgage crisis.

With the government in charge of so many mortgages, it either has to do what it’s been urging the private sector to do, or lose all its moral authority on this one.