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.

Comments

[Stirner]

"Who gets us out of this mess?" -- Hillary will print up a zillion dollars and hand it out to everyone. Obama will take zillions from the rich and give to the poor (where have I heard that before?). McCain will distract us from economics by starting more wars. Who? who else but Ron Paul? Time to start thinking out of the media "envelope".

[darker]

WE DO. WE get ourselves out of the quicksand by ourselves.

LOOK before you leap.

IT HURTS to say that most voters have been duped, dumb asses. Screwed by Bush-Cheney-Rove.

Alas, the SAME REPUBLICAN MEDIA TACTICS are coming to SMEAR, DEMONIZE, SWIFT BOAT Obama.

THE TRICK IS ... to stop being an immature spoiled brat VOTER . DON'T BY THE republican BALONEY. IT'S ROTTEN [think: luncheon meat THAT STINKS].

BE A RESPONSIBLE ADULT.
THIS IS NOT a SPORTS event, as republicans want you to believe--"all about EMOTION". NOT. NOT.

Choose the most COMMEN-SENSE
candidate who is NOT Republicans all over again. (get it?).

[PlanetKansas]

Bailing out the financial instututions creates another mouth to feed. It's going to cost money, and we either raise taxes or issue debt. Reagonomic thinking dictates that we preserve the financial systems and a period of rapid growth like the 1990's would erase the deficit.

A boom cycle may eventually follow but we may never catch up while we are handing out tax checks, bailing out Wall Street, fighting wars overseas, and picking up the tab for retiring Baby Boomers. That we don't even address our deficit spending has me very worried.

I am afraid our political system no longer has the ability to govern, only entertain, and we have but ourselves to blame for what will happen next.

[Openeyes]

This is the perfect metaphor for which is more valuable, experience or judgment.

The obvious answer of course, is judgment - isn't that what experience is supposed to be for anyway? "Experience" for experience's sake is useless if you don't learn anything from it. Hillary obviously hasn't learned anything from whatever her suppossed experience in these matters was.
Hillary's relying on her "experience" is to get the same clowns who created this mess to fix (perpetuate) it.

Barack's response is to look to who could ACTUALLY fix it, and he proposed this how many months before Hillary?

[kamldp]

If this commission had been formed a year ago as Sen. Obama urged, the situation may have been averted or at least lessened. He stressed that the panel should be independent. Just because you try to buy favor does not mean that it is granted. Over a million people also contributed to his campaign and what we are receiving in return is honesty and good judgement which is what many of us want most.

This is another - factual- instance of Sen. Obama's foresight.

Two of the biggest topics of this election (not including all the peripheral shrapnel) the Iraq War and the Home Mortgage collapse, both intregally related to the economy, and in both cases - he called it right long before his opponents but couldn't get anyone to listen or act, they all have too much experience to listen to a junior senator. This is what judgement looks like and they will have to listen listen when he is the next President.

[FatherOfAllLife]

This is another - factual- instance of Sen. Obama's ACTUAL VOTES:

oBOMB'em has NEVER voted against funding the ILLEGAL WAR$ of AGGRE$$ION and has OVER 20 MAJOR PRO-WAR VOTES. Man of peace my A**.

oBOMB'em also has numerous VOTES FOR ATTACKS ON OUR RIGHTS & FREEDOMS.

oBOMB'em WANTS TO ESCALATE THE ILLEGAL WAR of AGGRE$$ION in AFGHANISTAN and START a NEW ILLEGAL WAR of AGGRE$$ION in PAKISTAN & I'D BET THAT HE CAN COME UP WITH TRILLION$ of "REA$ON$" & EXCU$E$ to NOT pull of Iraq.

DO SOME ACTUAL RESEARCH!
ALSO LOOK UP CFR TRAITORS NAU NWO

[SparrowL]

Physicists know there's no such thing as a free ride, and they've known it for hundreds of years. You can't get something for nothing; no perpetual motion machines or free electricity from the earth's magnetic field. But the economists and politicians and "business leaders" keep trying for Rube Goldberg solutions, anyway.

I agree with John McCain: It's not government's role to bail out individuals who act irresponsibly. So let the money changers sink, along with all the "little people" who should have known better.

Don't like the economic horror that leads to? Well, then someone better figure out how we're going to borrow ourselves out of debt, and good luck with that! But I'm afraid that absent some way to find, steal, or create a lot of new "real wealth" very quickly, we're going to pay the devil his due for letting our greed run amok.

[rmreddicks]

While they're standing in the hole they're digging for us their neo-liberal pals will hand 'em shovels. When they get about six feet down, instead of jumping in as usual, let's leave them there and fill up the hole. Then we can deal with the shovel lenders.

[hopeless277]

There is only one lesson to be learned from this financial situation: if you're going to steal, steal big. It appears that if you loose billions, the taxpayer(through your FED), will give you back all the money you lost. If you only loose millions or less, you're on your own. It's all a racket. Remember, no one expected the Spanish Inquisition!

[TakeSake]

Which, ironically, was more a way to get out of debt (for the King) than an actual religious thing.

[ProfessorDuh]

No one "gets us out of this mess." We're going to have to dig out of it ourselves. The difference between the political parties is that the Republicans caused the avalanche, and plan to pile more debris on top of us.

[ZingoBonMot]

I wouldn't hire Greenspan, Rubin or Volker to clean a toilet.

[midtown]

The first Clinton gave us NAFTA, China Most Favored Trade Nation, and the repeal of Glass-Steagall. And the first pre-emptive war: Kosovo.

The Second Clinton is not intelligent enough to understand the consequences of what the first Clinton did. That's why she wants to bring the old crew back.

[MilwaukeeDan]

midtown, you hit it, and the masses are just eating this shit up. Why didn't she suggest David Walker(the resigned comptroller general of the USA), he has all the true numbers. The average American is headed toward third world status and idiots like Greenscam and Rubin aren't going to save us.

[SparrowL]

One isssue, midtown:

Both Clintons are very, very smart. They just have their values on backwards. For that matter, Hillary can't seem to even keep hers straight! Like so many others, they're intoxicated by power but can't figure out what to do with it when they get it.

[VIETVET999]

I think it is too much to ask for ANY Clinton to stick to the truth. She could start with a fact and try and work up to the truth.

[Maxine]

Hillary is a disgrace to women and Veterans! My husband is a Vietnam Vet and he "actually" took sniper fire. She must be stone to embellish (lie) about running under sniper fire. In doing so, she belittles all of our men and women who have and are fighting in war.

[daddysboy]

Any bailout of these institutions MUST include a requirement that they be liquidated. Organizations found to be responsible for encouraging loss and bad debt in the name of quick profits should not be allowed to continue to operate. Our economy and the banking industry has been and should be strictly regulated to prevent such abuses from occurring. Ultimately , the businesses responsible for this should pay for it with their assets. Members of the Democrat party if elected MIGHT be in a position to make this happen, but it would require severing close ties to the industry that as you say has been spreading the wealth among the candidates as of late. Interestingly, if there IS money to pay for candidates, shouldn't there be room to continue to shoulder the debt at reduced interest rates all on their own?

[crazyv]

Home values have gone up faster than incomes. The only way that it can be sustained is through reduction in borrowing costs- interest rates, principal repayments. Fed gave us lower rates so that helped for a while, then lenders agreed to interest only loans that helped for a while and then finally they provided teaser rates (essentially lending borrowers the money to make the interest payments) and that helped but then they were finally left with no more gimics. Home prices were still too high and the marginal borrower couldn't afford to buy and prices start to fall. As they started to fall all those folks with teaser rates couldn't refinance and they defaulted. As they fall more the folks with interest only will start to default. Only when they have fallen sufficiently so that prices match incomes will there be stability in the housing market. It best thing for the economy is reach that equilibrium as quickly as possible. All these plans will just make the problem worse and are nothing more than attempts to hold the tide back. There are two lessons from history- the Resolution Trust (the right way) and the Japanese whom we are trying to copy which is clearly the wrong way.

[daddysboy]

That "balance" as you say will be at the cost of hundreds of thousands of Americans losing their homes. I'm not saying it may not be inevitable, but we shouldn't dismiss alternatives out of hand.

[pdpobol]

Please Google the term neoliberalism (it doesn't mean "liberal" in the way we usually mean it in this country). Ronald Reagan, both Bushes, both Clintons, McCain and, yes, even Obama, are neoliberals. Most of the politicians and economists running the major financial institutions in this country are neoliberals. Most of the people in the "right "and "center" think tanks are neoliberals. In other words, we are choosing between tweedledee and tweedledumb. Until we discredit this recidivistic political/economic agenda and move on to politicians and economic leaders with a different and better economic philosophy we will continue to get more of the same -- and how much more can we take?

You might want to read Naomi Klein's "The Shock Doctrine" for an interpretation of why we seem to keep lurching from crisis to crisis.

[daddysboy]

Please look up the term liberal in a DICTIONARY.

[texanna]

Yes, pdpobol, I totally agree with you regards "The Shock Doctrine" as a primer on how our economic policies have wrought havoc on our politics and the way we have conducted ourselves internationally since the 50's. I was concerned about Sen. Obama's connection to The University of Chicago early on and those concerns have not been allayed to date.

[bamabluedotgirl]

On the surface Obama appears new and different-­-appealing to those of us jaded by all the years of Bush-Clinton-Bush. And Reagan--Good Lord--Reagan.
That being said, I too fear his University of Chicago connection. Does anyone have information or links about this? I can't find anything.

[jdenham]

With this economy I can not afford to buy a dictionary, and fuel cost are to high to drive to the Library. Good point anyway.

[rmreddicks]

good one PDPOBOL. Just finished her book. Makes you wonder about the usg's & corporate "solutions" for the present and deeper looming economic crisis. Hell, it makes you wonder if they're just taking advantage or/and have they helped manipulate it. The citizens of the u.s. may be the neo-liberals and Friedmanists last easy (and lord knows, we've proven ourselves easy) target. People of this country need to look to Scandinavia, parts of Western Europe but most importantly to South America for economic answers that preserve democracy and human dignity. A look back at the pressure working people but on this government 70 odd years ago would be instructive, also.

[OneLiberalLady]

Maybe we should bring back Rumsfled and Bremer to help us get out of this doggone mess we are in in Iraq!