At the Corner of Main Street and Wall Street

The American Prospect's Robert Kuttner hailed Obama's recent economic address on fixing our looming financial meltdown as "a remarkable breakthrough." As Kuttner rightly points out, the crucial distinction between Barack Obama and Hillary Clinton on repairing our economic woes is that Obama puts the mortgage crisis into the larger context of our recession and Wall Street's political clout when it comes to financial deregulation, whereas Clinton does not.

Both Obama and Clinton favor the Frank-Dodd Bill for fixing the mortgage crisis. This bill would enable the government to guarantee new loans from banks for families facing foreclosure, but it's not enough to remedy the situation. Obama is ready to address our floundering economy as a whole and revamp our regulatory framework without bowing to special interest groups. "Obama is one of the few mainstream leaders," Kuttner writes, "calling for capital requirements to be extended to every category of financial institution that creates credit."

By contrast, Clinton's recent speech suggests that economic issues like job losses and skyrocketing gas prices started with the mortgage crisis. In other words, the subprime catastrophe is its own isolated mess. Clinton inexplicably keeps this mess apart from the problems in the financial sector, or, in Obama speak, she separates Main Street from Wall Street.

What's all the more frustrating, as Kuttner notes, is that Paul Krugman of the New York Times can't see this distinction between the two Democratic candidates. Perhaps Krugman doesn't get the significance of Obama's FDR-ish plan for broader, modernized financial regulation. He claims to be pleased by it, and yet he calls Obama's proposals "cautious and relatively orthodox." To me, cautious and relatively orthodox would be turning to Robert Rubin and Alan Greenspan for advice (both of whom are responsible for getting us into this predicament in the first place), which is exactly what Clinton wants to do.

Comments

[Novista]

You cannot solve a problem with a quick fix.

The grim truth about the housing debacle is, as of 2006 (November) when the market peaked, the median price was 70% over the trendline. From 1998 to 2001, housing prices took off about 50%. Propping up a bubble market is progressive toward disaster.

How do you create MBS (mortgage backed securities) without mortgages? Right. It could be that ~subprime~ was the least of the problem, being those were only 6.3% of the total mortgage market in eight years. Therefore, likely a fair lot of 1990s mortgages are in those alphabet 'creative investment vehicles' only no one knows what they have.

Our candidates trying to prop up a broken system are only delaying the inevitable correction that has to happen. Else, had they been involved in the Tulip Bubble, they'd probably be assuring people that, of course 1000 Guilders is a fair price for this bulb -- just as it was yesterday, never mind 3 pfennigs today.

[nazgul]

"...Obama puts the mortgage crisis into the larger context of our recession and Wall Street's political clout when it comes to financial deregulation, whereas Clinton does not."

That's because he gets it and he's not going to skirt around it for the sake of special interests.

[ljsfolly]

I love it when people think that Greenspan isn't to blame for this economic mess. If his brain was so powerful and can see the light now on how to correct it don't we all think he was smart enough to know what he was building when he was in charge of it? He knew he had little time left before the implossion and he bailed. Anyone who thinks he has the answer after he caused it has lost their noodle and Hillary has much to learn and Bill C is not the one to be asking. All those people voting for her have never really thought/believed Bill C was just lucky to have the dot coms during his time in office. No more than that, lucky.

[BillZBubb]

You've resorted to the usual Republican line that Clinton was just lucky! How sad is that?

The dot-com bubble did very little to account for the economic successes of the Clinton presidency. You seem to forget he took an economy in recession and transformed it into a growth engine. It wasn't all Clinton's doing of course but he set it in motion. His first act was to raise taxes on the high earners. That, and careful budgeting, allowed him to gradually, but substantially reduce the deficits each year of his presidency. This was occurring from day one--not just at the end when the dot coms boomed. The dot com boom didn't happen until the late 1990's--well into Clinton's second term.

Just as he stated in his 1992 campaign, by getting the budget under control, interest rates and inflation were held in check. That stability from the federal government worked its way down to the states. Business conditions improved dramatically, just as Clinton predicted--and just the opposite of how Clinton's relentless right wing attackers predicted.

Real median wages rose under Clinton. And that is the key measure of economic success. Not too many presidents recently can say that. It was in large part because of Clinton's fiscal policy.

Apparently you are an Obama backer, and like too too many of them you never miss an opportunity to slime a successful Democratic president. It's pathetic really.

[Researchguy66]

I actually wopuld have preferred had the Iraq war stayed on the front page instead of economics. First of all, because it's what we SHOULD be concerned about. Secondly, there seems to be so much childish economic theory being thrown around, it makes me doubt whether any of the presidential candidates have any clue about runningthe world's largest economy.

All economics are interrelated: the dotcom bubble, tech stock performance, the mortgage mess,the dollar and the current recession (as is or may be, whichever). Most importantly, the key issue at hand is that we spend way too much and save/invest way too little. That phenomenon is a long time in the making, well-before Clinton in 92. American families, businesses and governments are all flush with debt. Our spending habits on every level are based on our expected ability to repay (often wishful thinking) rather than on solid priorities.

I know that financial regulation and interest rate policies get all the sexy headlines. Without a plan to turn the tide from borrow and spend to wealth creation all all levels of American society, it's all just a continuation of the policy to sell off our assets to maintain a ridiculous standard of living.

[drmavis]

Krugman has ceased to demonstrate intellectual honesty with the readers. He's so "in the tank" for Hillary that he has lost objectivity. I don't trust Hillary one bit with the economy -- maybe she can come up with some quick fixes to temporarily boost the stock market, investment banks, and hedge funds, but her policies are no good for the "little guys" that she pretends to be a champion for.

[BillZBubb]

Krugman, one of the true champions of progressive economics, truthfully points out the flaws in Obama's economic plan so now to the Obama fanatics he's become dishonest.

You claim Hillary Clintons policies are no good for the "little guys" base on what? Your intellectual honesty? You don't "trust her" when the Bill Clinton presidency was the only one in the past 30 years that was actually good for the "little guys"--and the big guys too. Real median incomes rose. Household wealth rose. Retirement funds rose. Deficits fell. Unemployment fell.

Clinton wants to raise taxes on high income earners to pay for her programs. She wants the Federal government to underwrite mortgages for those who find themselves being crushed by the mortgage mess. This in effect is restoring a program from FDRs days that the right wing killed. She can get these things done.

Among other items Obama promises a middle class tax cut. We've got a huge deficit and debt already. So how is Obama going to pay for any progressive programs to help the "little guys"? The truth is he can't. Krugman points that out. Does that make him intellectually dishonest? Clinton understands the real limits on what can be done and isn't overpromising. Obama promises unspecified or unrealistic change based on a lot of wishful thinking. I don't know if he actually believes the Republicans will work with him for progressive change (in which case he's naive) or he's just running a line of bullshit.

[Je111]

The administration kept up the appearance of propsperity through cheating, thru the biggest government spending, biggest jump in budget deficit and national debt in history. He borrowed against the future of every american. Every chilren will be born with debt, every retiree will face the risk of bankrupt social security, every working adult will be shouldering the main burden of the paying down the debt and yet by the time they retire, they may not even receive social security as by then maybe already bankrupt. Why debt would cost us? It costs Billions to pay debt interest alone. Government in order maintain operation in a high debt, high budget deficit situation, they can do either of both of two things: 1) raise tax, 2) print more money. GOP don't like tax on the rich, so they choose to print more money. You know why dollar depreciates, gas price, food price, tuition, etc rise lately, that's because the more money the government print without real productivity that backs it up, the less the money worths. So people maybe earning same salary or even slightly higher, but people collectively get poorer because actual buying power is reduced. So government pick your pocket either way. Voters weren't informed that Bush lost money running his own company and running Texas and elected Bush and now get the mess in our hands. Voters are again misguided to believe an unexperienced Obama could address all their problems and fulfill their wishes with his "audacity of hope".

[BobC46]

In late September 2001 the Dow was at 8235 and it would go lower, but the failed policies of GW Bush have seen the market shudder, collapse upwards, fall negatively, to 12600. Oh the pain, oh the misery, it' worse negatively than the Great Depression. Socialists of the world unite, vote Hillary or Barry and stop this horrible growth.
Unemployment rate is still 5% which is full employment, despite the best effort of the evil Bush/Cheney neocon administration.

[dantheman]

You are a terrible liar my conservative wingnut!

When Bush was first sworn in, he inherited the dow at close to 12,000. In his 7 plus years in office, he has only managed to increase it by barely a thousand,by far, the lowest and worst peformance by the dow since the great depression

[BobC46]

Dantheman, I forgive your comments, because it is based on ignorance. Here are the facts. Look at the DJI for September 2001:
Date ................. Open ....... High............ Low Close Avg Vol Adj Close*
1-Oct-01...... 8,845.97.. 9,001.03....... 8,659.90 8,950.59 1,232,700,000 8,950.59
24-Sep-01.. 8,242.32...... 8,945.68,.­.......8,2­42.32 8,847.56 1,614,780,000 8,847.56
10-Sep-01... 9,603.36 ..... 9,740.44 .....8,926.93 8,235.81 1,950,081,600 8,235.81
4-Sep-01... 9,946.98 ....... 10,238.50...... 9,507.04 9,605.85 1,336,700,000 9,605.85
31-Aug-01... 9,918.96...... 10,072.22 .....9,846.72 9,949.75 920,100,000 9,949

[Herrington]

You refer to the "cooked" unemployment number U-1 published by the BEA. The real "official" number, stubornly published by some valiant souls at the BEA, is the U-6 number, showing unemployment at 12%. In truth, the number is probably much higher as it does not consider under employment, currently running at about 30%.

The facts about the economy and employment have not been on the level since 1983. Reagan decided we needed a rosy world for when he next stood for election.

Oh, and the "full employment" figure of 5% is a product of Milton Friedman's modern recalcualtion of the optimal rate of productivity versus upward wage pressure, formerly known as the "natural rate".

[sd4peace]

...as the dollar goes down prices inevitably have to go up, that includes the price of stocks.

[BillZBubb]

Clinton understands all too well Wall Street's political clout. That is why she isn't overpromising on regulation. Unless the Democrats score an unlikely overwhelming victory in November, Obama will find he cannot get too much of his program passed. And, if Obama plans to work with Republicans as he has promised, he'll find it even harder.

To suggest that Clinton doesn't understand (or care about) the larger context of our economic mess is absurd. To equate Robert Rubin with Alan Greenspan for part of the blame for the mess is even more absurd. This is a Greenspan/­Bush/conse­rvative mess--in toto.

I do fault Hillary Clinton for talking about including Greenspan in her advisory group. That's like letting the thief direct the criminal investigation. She should have saved that bit of pandering to the clueless independents for the general election.

[oldpotsmuggler]

I'm not sure that there's much left to say.