Who Gets Us out of the Mess?
Are the folks who led us into the mess the best ones to lead us out? Yesterday in a speech on credit crisis, Hillary Clinton called for the president to appoint an “Emergency Working Group on Foreclosures,” led by “a distinguished non-partisan group of economic leaders like Alan Greenspan, Robert Rubin, Paul Volcker.” (emphasis added) This “proactive step,” she argued, would “help re-establish confidence in our economy.” The group’s first order of business would be to assess whether and how the government should “buy, restructure and resell underwater mortgages.”
Alan Greenspan, former head of the Federal Reserve, is the official most directly responsible for the current crisis. He not only failed to demand and enforce regulation of the shadow banking system at the heart of the credit collapse, but he served as cheerleader in chief for both the housing bubble and the exotic financial innovations that turned the staid home mortgage market into a speculative casino. Bob Rubin, Secretary of the Treasury under Clinton, made financial deregulation his signature, including repeal of the Depression Era Glass-Steagall Act designed to limit the conflicts of interest at the heart of the current debacle. As chief strategist of Citibank, he presumably helped lead that bank into billions of losses in mortgage backed securities. He would have a direct financial interest in the terms of any federal refinancing of home mortgages.
Greenspan and Rubin were once hailed as the Committee to Save the World. Are we now to engage them to save us from the world they helped create?
Hillary isn’t alone. John McCain admitted that “The issue of economics is not something I’ve understood as well as I should.” But he said, “I’ve got Greenspan’s book.” The Obama’s campaign response to Hillary’s proposal was to say that he had suggested a similar group last fall, although his economic advisor did caution against having people on the committee with a stake in the outcome. As the charts below show, banks and investment houses are by far the leading contributors to both the Obama and Clinton campaigns (not surprisingly, since that’s who’s been making most of the money in the past decade).
This is no small matter. We are headed to a taxpayer funded intervention into the housing-credit debacle. The Federal Reserve has already committed hundreds of billions to support the squirrely securities of unregulated investment houses. If the crisis continues to get worse — which seems likely — Congress will be forced to step in to try to avoid a deep and long recession or worse. Already Senator Chris Dodd and Representative Barney Frank are developing plans for a federal agency to buy up the mortgages of homes that are “under water” — worth less than the mortgage. This would get the bad paper off the balance sheets of the banks and investment houses, and refinance homeowners at a lower price. Hundreds of billions will be at stake in the terms of those deals — how much loss the banks and investment houses are forced to absorb, how low the new price of the house is set, how much the government will risk. As Bob Rubin has stated, any bailout should include regulation of the unregulated shadow banking sector, with strict requirements on capital reserves to limit leveraging and gambling with other people’s money. Any bailout should also begin to regulate bankers’ remuneration, to curb the multi-million dollar personal incentives they now have to make riskier and riskier bets. To get this right, an administration will need leaders knowledgeable enough to negotiate these rapids, but independent enough to protect the public interest.
That won’t be easy in any case, but the folks who helped dig the hole we are in aren’t likely to be the best in getting us out of it.
Robert L. Borosage is the president of the Institute for America’s Future and co-director of its sister organization, the Campaign for America’s Future.
Copyright © 2008 HuffingtonPost.com, Inc.
When one finds oneself DIGGING a hole (deeper and deeper)
THE very FIRST thing to do,
However, if one has dug far enough to turn the hole into a quicksand quagmire, then to keep digging or to stop still leaves one sinking fast.
The leaders need to dust off the programs that FDR used to control the capitalists and start some programs that actually help people. The programs could be initiated in the commonwealth states to see if they work.
CURTIS — Unilaterally revoking all the laws that bush (and somewhat so, for clinton) passed, would automatically do so.
Is there anything good out of this govt in 10 years?
Namaste
Can we use RICO on the Chicago School of Economics?
Curtis March is 100% correct.
Congress needs to quickly re-apply New Deal financial industry regulation (that has been dismantled since the January 20, 1981 Raygun inauguration)as this solution will work in the short term and long term.
Forming a working group that is limited to the group of people that caused the whole problem will probably not work in the short-term and will create an ever worsening series of financial crisis in the long term that will further enrich the 1% at the expense of the 99%.
Reading Greenspans book to help get us out of this financial mess is like reading Mein Kampf to get us out of our foreign policy mess.
Hmm…how does the saying go, to keep trying the same thing over and over is insanity?
“Congress in no rush to fix Medicare and Social Security”
…and the costs of frivolous warfare.
I suspect that we will need to sell the Louisiana Purchase and the rednecked jingos that go with it to pay off our national debts.
GDE — you and I had exactly that same (RICO) thought, so hopefully a bunch of “good” lawyers are going to get motivated
¿ Isn’t there a triple reward (encouragement) or something ?
Namaste
Christopher Dodd would make a heck of a president. So would Kucinich, Richardson, Edwards or Biden. Next time, I HOPE the Dems will refuse to attend debates moderated by so-called journalists working for right-wing ideologic network owners like Disney and Murdoch.
Taxes will not pay for the bail out. It will be done with newly printed money. Everybody will pay through currency devaluation, not through taxes. The standard of living will fall so bankers can continue to be rich.
Negative re-enforcement works. Let those those that made bad loans go bankrupt. Let those that accepted loans they cannot pay lose their houses. Let those that invested in a company willing to gamble lose their investment. Bail any of these groups out, and they will do it again.
Hillary’s suggestion clearly shows the problem.
For at least the last 30 years, the government has dedicated itself to doing what Wall St wants. The very fact that she thinks of Greenspan and Rubin as the experts to solve the problem illustrates the problem.
Homeowner whose house represents almost all their life savings haven’t had a voice in the American government in ages. They don’t make six figure contributions to the campaigns.
Reward the behavior you want to continue.
I love the people on the left who are very happy to inflict great pain on lots of people. No wonder the left can’t get 5% of the votes in an election.
The problem with just letting everything collapse is that many, many, many people who did not ‘accept loans they can’t pay’ will get hurt. Sure, there are people out there who overreached and bought way too an expensive house. Or who listened to the infocommercials you used to see on how to get rich on real estate with no money down. If it was only those people getting hurt, I might agree with the idea.
But its not that simple. Lots of people who didn’t do that will get hurt as well. Because when those loans go bad, those houses go back on the housing market as foreclosures. That drives down the price of the housing market far below what it aught to be. We’d go from a bubble to whatever the opposite of that is.
When this happens, many, many people who did everything right get hurt. Their homes are now worth far less than anyone would ever have imagined. And in the accompanying recession\depression, they might lose the job that they thought was very secure and not be able to find another. So, now suddenly people who were very prudent in the loans they took out end up in exactly the same boat as the people who borrowed way too much money. And that’s not the end up, because as this wave of even more houses hit the market at foreclosure prices, then the value of homes goes down even more and even more people get hurt.
So, I’m kinda amazed to see people saying that this sort of pain needs to be inflicted on many, many, many people who did nothing wrong.
And guess what, there are winners in that game. They are the wealthy who, while they might lose a little money from their balance sheet, really aren’t hurt by this. Maybe they postpone buying a new yacht. But they’ll be the ones with cash to spend when the whole thing collapses and it hits bottom. So, while you’ve put millions of ordinary working people out in the street by letting this crash, what you’ve also done is make the rich even richer because they’ll be the ones with cash to scoop up all the bargins that will be around.
This ‘let it all crash’ idea sounds fine in theory, or as a short comment on a blog. But go read a lot about what the great depression was really like. Do you really want to see millions of people losing their homes? Do you really want to see the economy crashing and unemployment spiking up into the double digits (at least, it hit something like 25% in the 30’s). Do you want to live in the wreckage of all of this for at least a decade afterwards as people struggle to rebuild?
If people really want to see that, and I always see comments essentially cheering on such a crash out here, then its little wonder that the left can’t get 5% of the vote. I wouldn’t vote for someone who would do that to me either.
The key is you have to care about people. I’m disgusted with the right because they are willing to sacrifice people for their ideology. And I’m no more fond of people on the left who would also sacrifice people for idealogical ideas. Care about the people around you, and then you are on the right path.
I don’t see how a person who puts nothing down and pays only interest or less than interest on a mortgage can think of himself as “losing” his home. He has essentially paid rent, he has lost nothing. Maybe I’m a Republican.
In the broader scheme, we’re not getting out of this mess. Our standard of living is going to plummet. It’s the price of ignorance, the cost of making ignorance a virtue and a national policy.
Ghawar - he may not have lost any money - but an enslaving amount of debt is imposed on him and his family. All thry were doing is imitating the geometrically enlarging war debt of the Bushies.
in credit unions the members deposit money, and the members borrow money. are credit unions deregulated, too?
Ghawar, when people lose “their” homes, they also lose any good credit rating they may have had. This means 7 years of bad luck in the USA. Seven years is a long time to not be able to even rent a decent apartment that is not on the edge or in the ghetto. It is more than a psychological adjustment. Living in the ghetto is a lifestyle - until you can get the hell out.
I remember some Alfred E Newman smiling repugnant Bush-ass kissing Republican interviewed on C-span, just elated over the way BUSH made so many struggling Americans HOME owners… yeah, now we see through the fiscal cellphane on this one, debacle r’ U.S.
Except for higher gasoline and grocery prices, this hasn’t hurt us yet. We have no debt and own our home and property. We (my wife and I) accomplished this by only spending what we knew we could pay, and banks (then - 18yrs ago) would only lend pretty much that amount. When the bogus loans came around my wife and I thought people were crazy for getting into them. The terms of the payment schedule were spelled out, and were quite disastrous.
We live modestly and have been frugal; I don’t think we’ll be rewarded.
Oh not to mention that your government tightened up the bankruptcy laws just before setting us all up for the BIG fall.
I’m beginning to think that the government doesn’t love me anymore.
every day another reason to say:
Ron Paul
I suggest a referendum to get out of Iraq now and make the war profiteers pay for our losses.
Vince - Appearently your reward for being responsible in your financial dealings and delaying your personal gratification, is that you get to finance other’s fiscal irresponsibility and gluttany. At least this is what I am picking up from some of the posters here.
McCain will get us out of this mess. That’s because he will be elected easily now that the media has made clear that the Democrats have once again proven themselves inept and stupid. In other words, the media has already declared McCain the winner. Consider, for example, that today CNN gave Obama’s speech on the economy about two minutes before cutting to McCain’s response and then to another shooting somewhere in the South, whereas McCain’s war speech was broadcast in its entirety. Even NPR is on the McCain bandwagon. In this media environment, only a Republican will win.
Quality Time, isn’t that the plan? the Repubs are in the corporate pocket and corporations want repubs in the white house. The days of Free Press are over. They only show us what they want us to see. They only mentioned Kucinch when they were talking about UFO’s or something. If all you watch is TV and read the newspapers, you never even knew there where others running for President.
Mr Obvious- Your rather hard-hearted on this issue. I know a fellow who has always worked hard and had his home nearly paid off. Sadly though, he has a gambling habit and a lender was nice enough to lend him a large amount of money on a second mortgage. Well, somehow or other, his luck gambling has never been good and he lost all the money. He quit paying on the second mortgage and now is in foreclosure. This man was also a junk-hauling entreprenuer, and discovered that his profits rose exoponentially if the junk was placed on the property surrounding his home instead of paying landfill operators and recyclers. At any rate this story is ending badly for this fellow and for the second mortgage holder. Is massive stupidity a good enough reason to not help these poor bastards? (I feel bad posting this, because I’m sure there are many truly deserving cases for help)
Greg R - People used to form communities and help out each other when they got in trouble. Government bail outs mean that our charity is forced and its direction determined by government whims. I am hard hearted if that means that I do not want to pay to keep someone with a gambling habit in a home that he now cannot afford. In a free country we are free to do stupid things as well as make good decisions. If your friend cannot manage his affairs, then I do not want to keep him in a position to loose more money that is handed out to him. If he wants/needs a government bail-out, then I would prefer it to be in the form of government housing for the poor. I would rather someone who uses their freedom more wisely live in his old house. You wrote: “Well, somehow or other, his luck gambling has never been good and he lost all the money.” Gambling is a recreational activity where one loses money while being entertained by the remote possibility of winning big money. Should we encourage everyone to take their savings and buy lottery tickets because they may win big, but if they don’t, we’ll bail them out with our tax money. For me, helping out means food, clothing and shelter that is adequate, not the maintenance of a failed lifestyle.
Greg R - Just to be clear, my above statements refer to government hand-outs and are not meant to be applied to personal charity. I recently contributed to a fund to help pay the medical bills of a life-long smoker that has lung cancer. Personal charity is a personal choice and I wish that I had more of the money that I pay in taxes to contribute as I see fit.
Mr Obvious-I agree with you to some extent and meant to be a bit facetious with: “Is massive stupidity a good enough reason to not help these poor bastards?” That said, I do worry about certain areas of the country where a dollar is hard to come by, and trying to help a neighbor with medical bills could be near impossible.
Greg R - I just wonder if support for the poor should be handled at the community, state or federal level, and how to provide incentive to become self sufficient.