Monday, March 24, 2008
To solve the current crisis, Hillary Clinton believes we need sorely missed proactive policies that ask what is best for families on Main Street. That starts with economic leadership that is poised to preempt rather than chase crises. Last March, when the Federal Reserve and the Bush administration claimed that the subprime mess was "contained," Clinton called on regulators to take preemptive action -- including a foreclosure timeout, strengthening the Federal Housing Administration's capacities to respond to a crisis and cracking down on predatory lending practices with plain-language disclosure requirements. She has since called for a plan to encourage the restructuring of viable mortgages through a voluntary agreement to freeze interest rates on subprime adjustable-rate mortgages and a 90-day foreclosure moratorium. She immediately supported the legislation introduced by Rep. Barney Frank and Sen. Chris Dodd seeking a more systemic effort to unlock and restructure mortgages, and she continues to consult experts over the most effective method for doing so.
Clinton believes that even when seeking to get ahead of a Wall Street crisis, we must apply a "Main Street Test." Complex lending vehicles for sophisticated financiers must ultimately be shown to benefit America's working families. What justifies a $30 billion temporary lifeline for Bear Stearns and more common-sense supervision of our mortgage industry is the recognition that hands-off postures toward mindless or mind-numbing lending practices can lead to an economic spiral that can hit Main Street hard.
Sometimes the best way to meet the Main Street Test is to directly assist those who live there. On Thursday, Clinton proposed a second stimulus package, focused on helping at-risk homeowners and communities. Across the nation, concentrated foreclosures and vacant buildings are leading to downward spirals; they threaten to bring crime and blight into once-viable neighborhoods. In early January, Clinton called for a $30 billion Emergency Housing Fund to give localities broad tools to head off this threat, including the latitude to buy and rent out or resell such vacant properties. Today, even Fed Chairman Ben Bernanke is calling for policies to confront the community harm traced to "clusters of foreclosures." If we can provide a $30 billion lifeline for Bear Stearns, can't we afford $30 billion to prevent Main Streets from turning into mean streets?
As important as productivity growth can be, the ultimate test of our long-term economic policies are the wages, jobs, health care and economic mobility of typical and too often "invisible" American families. The answer does not lie in extending high-income tax cuts or in expensive new corporate tax cuts. Nor is it in creating a spate of new government bureaucracies. Hillary Clinton supports policies that empower Americans directly to achieve greater economic security and upward mobility: a health-care tax credit that goes directly to you; a $1,000 matching tax cut that goes directly to your savings account; and higher education tax cuts that go directly to pay for your or your child's tuition and dreams of a better future.
-- Gene Sperling
The writer, national economic adviser from 1997 to 2001, is economic adviser to Sen. Hillary Clinton's campaign.
To solve the current crisis, John McCain would shore up the foundations of the companies, growth enterprises and family businesses that are the source of jobs for our nation's workers. Spending by households and businesses is slowing, leading to job losses. Looming over daily market volatility, the mortgage crisis and the widespread credit crunch is the specter of inflation, especially in gasoline and food prices. To address these challenges, McCain would combine immediate help with reforms that ensure that American families will be protected from such threats in the future.
No government program is a substitute for a good job, and fast job growth requires easing employers' burdens. The most obvious cost is taxes; McCain would oppose Democrats' plans to impose damaging tax increases. He would improve our international competitiveness with a tax credit for research and development, investment incentives and a lower corporate tax rate. He would propose comprehensive health-care reforms that would change the practice of medicine to reward quality, high-value care, as well as tax credits and insurance market reforms to stop the erosion of health insurance. Such a combination would attack spiraling costs, ease pressure on family budgets, permit firms to pay better wages and reduce the number of the uninsured. His commitment to low taxes, controlling government spending and honoring international agreements would reassure investors and strengthen the dollar, helping to ease inflation and oil prices that are hurting American families.
Unemployment insurance and training programs are "automatic stabilizers" that help to minimize economic downturns. But today's programs are straight out of the 1950s. We must modernize unemployment insurance and training programs to create an effective system for helping displaced workers make ends meet and quickly move on to the next opportunity.
John McCain will not play election-year politics with the mortgage crisis. In evaluating any proposal, he will apply four principles: (1) No taxpayer dollars should bail out real estate speculators or financial market participants who failed to do due diligence in assessing credit risks. (2) Any financial assistance should be accompanied by reforms that ensure that we never face this problem again. (3) Too little equity -- small down payments by home buyers and too little capital at our financial institutions -- was a source of the housing and credit problem that must be reversed. (4) Where government assistance is merited, lenders and homeowners should make financial sacrifices to qualify.
The financial markets are suffering the after-effects of the bursting of a housing bubble. As with the technology bubble of the late 1990s, much of the difficulty has been created by speculators looking for quick profits and by investors and bankers who ignored basic rules of risk management in an attempt to cash in while times were good. John McCain will not dip into pockets on Main Street to reward these people with a bailout. He is committed to reforms that will restore economic freedom, opportunity and rising prosperity to hardworking families.
-- Douglas Holtz-Eakin
The writer, a former director of the Congressional Budget Office, is a senior policy adviser to Sen. John McCain's campaign.
To solve the current crisis, Barack Obama would immediately take three steps, addressing the fact that the troubles ultimately result from the squeeze on ordinary Americans in the "real" economy.
First, he would enact a comprehensive plan to help bring an end to the foreclosure crisis that threatens millions of families. Obama supports efforts to create a new FHA Housing Security Program to provide significant incentives and guarantees for lenders to buy out mortgages that exceed the value of homes and convert them into stable 30-year fixed-rate mortgages that homeowners can afford. This is a responsible plan designed to help responsible homeowners without rewarding borrowers or investors who helped create the problem by gambling recklessly or committing fraud, and it asks both sides to contribute to the solution.
Obama would couple this plan with a direct interest-rate subsidy for low- and middle-income borrowers patterned on the mortgage interest deduction now predominantly used by high-income itemizers, as well as with comprehensive credit counseling, additional aid for loan workouts and reform of the bankruptcy code.
A housing security program would help not just the families and neighborhoods threatened by foreclosure. It would also remove the darkest cloud hanging over the financial system. Resolving this issue would ease the financial crisis and get credit markets lending again.
Second, Obama would make sure that we get money into the pockets of people who need it and invest in sustainable job growth. This would include extending unemployment benefits, getting money to hard-pressed states so they don't have to slash key services, and giving substantial permanent tax relief to seniors and working people -- up to $1,000 per working family -- to help Americans who are struggling in this economy.
It also means enacting Obama's infrastructure plan to fund our desperate need for such investment, an alternative energy and "green" jobs development program, and a job skills program to improve our country's workforce. These can help prevent potentially devastating job losses in manufacturing and construction especially.
Obama's third priority is making sure that a housing crisis like this does not happen again. That means ensuring that we don't reward people -- whether borrowers, lenders or corporate executives -- for bad behavior in the mortgage market. It means installing the responsible oversight of credit markets that has been lacking -- on mortgages, yes, but also on credit cards, which threaten to metastasize into the next version of the mortgage crisis. It also means increasing people's savings so they have something to fall back on when things go wrong; enacting his long-run savings program would give virtually every worker in America a portable pension savings account.
The country's economy and financial system face some serious challenges. Barack Obama is confident we can meet these challenges the way America always has -- by coming together to ensure that our economy works for every working American.
-- Austan Goolsbee
The writer, a professor of economics at the University of Chicago Graduate School of Business, is senior economic adviser to Sen. Barack Obama's campaign.