Speaking before a friendly audience at the Heritage Foundation, Sen. John McCain (R-Ariz.) today criticized Democrats’ handling of the financial crisis, calling for further transparency and warning that the trillions of taxpayer dollars being pumped into the economic system could burden future generations.

But McCain also said he will “reserve judgment— on Treasury Secretary Timothy Geithner’s plan to overhaul financial regulation until it is fully explained. The Senator even suggested he’d be in favor of Geithner’s idea to purchase toxic assets from financial institutions, while cautioning that significant oversight will be needed to ensure government intervention will be handled properly.

“It’s progress,— McCain said of the Geithner plan.

McCain said he prefers that the government purchase the assets, take full charge of the institutions and then sell the assets to private companies as quickly as possible.

The Arizona Republican warned, however, against the government spending any taxpayer dollars without a clear idea on how to pay them back in the long run. As of now, it appears the government will either come out of the crisis with a huge bill or just mismanage things entirely, he said.

“It doesn’t add up,— McCain said. “It won’t add up, and it won’t last.—

McCain also cautioned against “sticking five percent of Americans with the bill— to fund the economic bailout through higher taxes, calling it “bad economics.—

“Insulating 95 percent of voters from the consequences is dangerous for democracy,— he added.

The government would be better off if it focused its attention on resources already available, including small businesses, which provide the backbone of the American economy, McCain said.

“We should focus on keeping those jobs and creating more of them,— he said.

“We’ve left our resources behind after we’ve delivered check after Treasury check,— McCain later added.

McCain focused solely on economic matters during his remarks, although he was wide-ranging in his thoughts, touching on everything from the Troubled Assets Relief Program to the auto industry bailout to a personal favorite — earmark reform.

Not surprisingly, McCain again called for a moratorium on earmarks, saying it is “deeply, deeply offensive— that Congress continues to fund various pet initiatives when Americans are cutting back.

“Earmarks are perhaps the most common means in which Members of Congress betray themselves,— he added.

McCain criticized the handling of the $350 million in TARP funds already released, and said he “will not support release of another dime of these funds— until there is a complete accounting of the money already handed out, and a clear plan is established on how best to overseeing the rest of the funds.

McCain also criticized the government’s handing of American International Group, from its initial bailout of the company to its handling of the subsequent AIG bonus scandal.

While McCain admitted he is angry the bonuses were awarded, McCain said taxing the money isn’t the best solution. He did note, however, that he favored letting AIG fail in the first place, which would have made the issue moot.

“It bothers me a little bit when a United States Senator goes to the floor and says, You give it back or I’ll take it back,’— he said.

And while McCain called the GOP’s stimulus plan a better alternative to what eventually passed, he admitted Republicans must do a better job of handing economic issues. “We let spending get out of control, and the president of the United States did not exercise his veto power,— McCain said.

“We lost the enthusiasm and the engagement of our base,— he later added. “We’ve got to get it back.—