Bush Flounders Around In Economic Crisis
"The fire sale in mortgage securities has yet to begin," Petruno wrote in a Sunday paper six months ago. "But it's coming. The implications for the rest of the financial markets aren't clear, but when confidence is shaken in one market there usually is collateral damage. Once again, Wall Street's rocket scientists (its gurus) have created a monster they can no longer control."
That same blog quoted Ben Bernanke, the chairman of the Federal Reserve Board, as making what then sounded as an extravagant prediction that the losses from the mortgage crisis could reach $100 billion. Now that seems like a low number. Last week, just two major financial institutions, Citibank and Merrill Lynch, reported new losses totaling about $20 billion, and the losses have spread all over the world. Just the New York Stock Exchange alone has started the year with the worst early January performance in its history. Meanwhile, consumer spending has tanked, stores are closing, and unemployment is rising.
Now, the latest development of importance is the threat to the solvency of bond insurers. If they should collapse, the subprime crisis will have metastisized into something bigger and even more threatening to the whole credit system.
As all these depressing developments have occurred, President George W. Bush has been wasting his time. He went on a week long and largely-pointless trip to the Middle East, where his tentatives looking forward to a settlement of the Arab-Israeli dispute have been followed by an intensification of rocket attacks on Israel from Gaza, and new proof that the hapless Palestinian executive, Mahmoud Abbas, is both weak and useless. Not until when and if Hamas and the other extremists are destroyed in Gaza, Lebanon and other areas proximate to the Holy Land is there any chance to proceed with a settlement. In Saudi Arabia, Mr. Bush was received politely, but there was little indication of any positive results coming out of his visit. In short, the President should have stayed home.
But when he is home, his administration's attempts to deal with the economy have been just as much wasted effort.
Take his latest proposal -- for a $150 billion tax rebate for lower-income Americans, and other measures -- to supposedly give the economy "a shot in the arm." This would mean a $800 rebate for a single taxpayer or $1,600 for those filing jointly.
This, like the earlier proposal of Treasury Secretary Henry Paulson for a bank fund to help rescue a minority of defaulting borrowers, is a halfway measure which promises little or nothing to resolve the present crisis.
Tax rebates are only a temporary measure, and their effects can only be temporary. Studies of past such moves indicate that most recipients simply use them to pay off existing bills and not to make new expenditures. Nothing short of a complete moratorium on mortgage payment increases, made retroactive about six months, can even hope to deal with the problems we face.
It will be said, immediately, of course, by Wall Street and the nation's financial institutions that this will be hard and unfair on them.
But the fact is that only major surgery -- big steps -- can possibly aright matters as they stand. The financial institutions are already losing billions of dollars, forcing them to go abroad in several cases for money from Arab and other unsavory interests.
In making loans by the millions to people who could not afford to repay them, and then selling bonds backed by these fraudulent mortgages all over the world, these financial institutions have done the country a terrible disservice, and now they must pay the price. By protecting the borrowers, perhaps some of the fundamentals of the present situation can be altered. the stock market arighted and consumer confidence restored. I'm afraid nothing less will accomplish very much.
If we had the British system of parliamentary democracy, Bush would have been forced to resign, and new, early elections would have been called, more than a year ago. Now, under the American system, we are going to have to wait for President Clinton or President Obama, most likely, to restore the economy. There is every prospect the policies of Mr. Bush and his lameduck administration will only compound the crisis. They simply are not up to the job.
And when something is done, it will also be necessary to fundamentally reform the Federal Reserve Board and bring it under new leadership. The board failed to adequately regulate the lending institutions, which it at least theoretically had the power to do, and the present board chairman, Bernanke. has proven to be always a buck late and a dollar short in dealing with the results of this earlier ineptitude.
It is very clear that the era of deregulation is going to have to be replaced by an era of new government regulation, so that greedy, irresponsible and plainly stupid financiers do not spin the economy into an even greater crisis.
The L.A. Times has an excellent Op-Ed piece today by historian Joseph J. Ellis pointing out that Sen. Barack Obama's campaign for a unified, nonpartisan approach in government directed at the wellbeing of the entire American people is profoundly in accord with the spirit and beliefs of the Founding Fathers of the Union, Washington, Adams, Jefferson and Madison.
Nothing could have been sillier this week than the criticism of Obama by Sen. Hillary Clinton and former Sen. John Edwards for having praised Ronald Reagan in some respects. This showed up both Clinton and Edwards as cheaply partisan. Their presidencies, if it came to that, would be a continuation of the bitter partisanship that has afflicted the nation in recent years. Obama's would not.