Campaign Advisers Focus on Mortgage Crisis
Saturday, November 10, 2007
A new issue is emerging in the 2008 presidential race: how best to keep the mortgage crisis from driving millions of people from their homes.
Yesterday, economic advisers to five candidates debated mortgage and other issues, giving hints of how their bosses might deal with the issue. The three Democrats on the panel generally called for more aggressive government action to prevent the problems from spreading, while the two Republicans warned that too much intervention could create perverse rewards for financial institutions and individuals who made irresponsible decisions during the housing boom.
"What is worth thinking about is the timidity of the response," Gene B. Sperling, who advises Democrat Hillary Rodham Clinton, said during the debate sponsored by the National Association for Business Economics. "For all the proposals out there, very little has happened."
"The question is how best to target relief to the individuals who deserve support," said Douglas J. Holtz-Eakin, an adviser to Republican John McCain. "The government is not the solution to everything."
One complication of the debate is that by the time the next president takes office, most of the damage will have been done. More than 2 million adjustable-rate mortgages granted to people with weak credit are scheduled to reset to higher rates by 2009, and analysts expect many of those homeowners to default, unable to handle the higher payments.
Congress and the Bush administration are scurrying to find policies that might ease the damage. But 2008 will be the peak year for such resets, and the worst of the problem is likely to have passed by January 2009, when the next president takes office.
Even so, "their answers today tell you a lot about how they would work through a crisis," said Jason Furman, a senior fellow at the Brookings Institution and an economic adviser in the Clinton administration who is not affiliated with any candidate.
For example, the adviser to Republican Rudolph W. Giuliani, Michael J. Boskin, emphasized the importance of actions that the private sector could take, notably lenders negotiating agreements with those at risk of losing their homes. "Giuliani's view is to work on work-outs, not bailouts," Boskin said.
Austan Goolsbee, adviser to Democrat Barack Obama, argued that specific quirks in the law make such work-outs difficult and should be changed. For example, laws make it hard for people to renegotiate with their lenders after filing for bankruptcy protection.
Goolsbee also raised an alarm about what he sees as the next potential crisis. People who were supporting their spending with home equity loans may now be loading up on credit card debt, Goolsbee said. "We are, two years from now, going to find this is the next problem to solve," he said.
The advisers offered a range of views on trade, health care, energy and tax policy. But the differences were mostly between the Republican and Democratic advisers; there were few sharp disagreements on display within either party.
The Democratic advisers were stylistically different. John Edwards's adviser, Leo Hindery, articulated a populist critique of trade policy; Goolsbee offered more unconventional ideas in a provocative manner; and Sperling used polished campaign-speak to criticize the Bush administration and call for a return to the 1990s boom days of Bill Clinton's administration.
The differences were even more subtle between the Republican advisers. Advisers to Mitt Romney and Fred Thompson declined to participate in the debate at the National Press Club.
"There's not a sharp delineation on economic policy between any of the Republican candidates," said Bruce Bartlett, a Treasury Department official from the George H.W. Bush administration who is now an author. "They are all mouthing the same vaguely supply-side-oriented solutions that have been very popular among Republicans."