Obama Remarks on the Economy
Friday, September 19, 2008; 1:17 PM
OBAMA: OK. Well, thanks for your patience, everybody.
We are, as everybody knows, facing one of the most serious financial crises in this nation's history. The events of last week, from the failure of Lehman to the bailout of AIG to the continuing volatility in the market, have not just threatened trading floors and high-rises of Wall Street, but the stability and security of our entire global economy.
Across this country Americans are worried about whether they can make their mortgage payments or keep their jobs or ensure that their retirement is secure.
So truly we're all in this together.
Our government and the Federal Reserve have already taken unprecedented action to prevent a deepening of this crisis that could jeopardize the life savings and well-beings of millions of Americans. But it's now clear that even bolder and more decisive action is necessary.
In recent years I've outlined plans that would have helped prevent the problems that we face, and yesterday I proposed the outlines of a plan that would establish a more stable and permanent solution to strengthen our financial system.
Today, I fully support the efforts of Secretary Paulson and Federal Reserve Chairman Bernanke to work in a bipartisan spirit with Congress to find a solution of this sort.
What we're looking at right now is to provide the Treasury and the Federal Reserve with as broad authority as is necessary to stabilize markets and to maintain credit.
We also need a more institutional response to create a system that can manage some of the underlying problems with bad mortgages, help homeowners stay in their homes, protect the retirement and savings of working Americans.
In the coming days, I'll work closely to examine the details of the Treasury and the Fed proposal, and, as I do, I'll work to ensure that it provides an effective emergency response by including four basic principles that my economic advisers and I just discussed this morning.
First, we cannot only have a plan for Wall Street. We must also help Main Street. I'm glad that our government's moving so quickly in addressing the crisis that threatens some of our biggest banks and corporations, but a similar crisis has threatened families, workers and homeowners for months and months, and Washington has done far too little to help.
For too long this administration's been willing to hit the fast- forward button in helping distressed Wall Street firms while pressing pause when it comes to saving jobs and keeping people in their homes.
OBAMA: We already know that the credit crisis that's emerged from our largest financial institutions is becoming a credit crunch for small-business owners, homeowners and students seeking loans in big cities and small towns across the country.
And now that American taxpayers are being called on to share this new burden, we must take equally swift and serious action to help lift the burdens they face every day.
In the same bipartisan spirit that's been shown with regard to the crisis on Wall Street, I urge Senator McCain, President Bush, Republicans and Democrats to join me in supporting an emergency economic plan for working families, a plan that would help folks cope with rising gas and food prices, spark job creation through repair of our schools and our roads, help states and cities avoid painful budget cuts and tax increases, help homeowners stay in their homes, and provide retooling assistance for America's auto industry.
John McCain and I can continue to argue about our different economic agendas for next year, but we should come together now to work on what this country urgently needs this year.
The second principle I'd like to see in the emerging plan from the Treasury and the Fed is that our approach should be one of mutual responsibility and reciprocity.
It must be designed -- it must not be designed to reward particular companies or the irresponsible decisions of borrowers or lenders. It must not be designed to enhance the personal gain of CEOs and management.
The recklessness of some of these executives has helped to cause this mess, even as they walked away with million-dollar -- multi- million-dollar golden parachutes while taxpayers are left holding the bag.
As taxpayers are asked to take extraordinary steps to protect our financial system, it's only appropriate that those who benefit are expected to contribute to the protection of American homeowners and the American economy.
Just as support is not designed to pay off egregious executive compensation, it should not reward those who are ruthlessly foreclosing on American families.
OBAMA: Third, this plan must be temporary and coupled with tough new oversight and regulations on our financial institutions, and there must be a clear process to wind down this plan and restore private sector assets into private sector hands after restoring stability to the system. Taxpayers must share in any upside benefit that such stability brings.
Fourth, this plan should be part of a globally coordinated effort with our partners in the G-20. This is a worldwide issue, and while the United States can and will lead in stabilizing the credit markets, we should ask that other nations who share in this crisis be part of the solution as well.
One last point.
We did not arrive at this crisis by some accident in history. What led us to this point was years and years of a philosophy in Washington and on Wall Street that viewed even common-sense regulation and oversight as unwise and unnecessary, that shredded consumer protections and loosened the rules of the road. CEOs and executives got reckless, lobbyists got what they wanted, and politicians in both parties looked the other way until it was too late. It is now the American people who've paid the price.
The events of this week I believe have rendered a final verdict on that failed philosophy and it will end if I am president of the United States. We have to build upon the ideas I've laid out over the last several years about how to modernize our financial regulatory system in this country and that establishes common-sense rules of the road for our financial system to help restore confidence throughout the financial system.
Finally, given the gravity of this situation and based on conversations I've had with both Secretary Paulson and Chairman Bernanke, I will refrain from presenting a more detailed blueprint about how an immediate plan might be structured until I can fully review the details of the plan proposed by the Treasury and the Federal Reserve. I think it's critical at this point that the markets and the public have confidence that their work will be unimpeded by partisan wrangling and that leaders in both parties work in concert to solve the problem at hand.
I know these are difficult days, and I know there are a lot of families out there that are feeling anxiety about their jobs, about their homes and about their retirement savings. But here is what I also know: This is not a time for fear, it's not a time for panic. It's a time for resolve and a time for leadership.
OBAMA: I know we can steer ourselves out of this crisis because we have done it before. That's what we do as Americans.
Our nation has faced even more difficult times. And each moment, when we have, we've risen to meet the challenges as one people and one nation. I'm confident that we will be doing the same in this circumstance.
And with that I'll take three or four questions.
QUESTION: Senator, you've talked repeatedly today about the recklessness of CEOs and so forth. But by all these bailouts, these hundreds of billions of dollars -- I mean, aren't we still sending a message to future, you know, gamblers that, "Look, whatever you do, we're going to be there to back you up anyway, so..."
OBAMA: No. If we structure it properly, then the answer is no.
Here's how I would describe the situation. We have a immediate emergency situation in the capital markets. And it is important to provide the Treasury and the Fed broad authority to make sure that the credit markets work, that bills are paid, payrolls are made, that there's liquidity in the system.
We have, then, an institutional problem that has to do with a regulatory system that's inadequate to the new global marketplace. We set up after the Great Depression things like FDI insurance to prevent bank runs. We put in place capital requirements. We made sure that banks had to operate in a prudent way in order to qualify for FDI insurance -- FDIC insurance.
And that part of it worked, except that part of it is just a fraction now of our overall capital flows. So we're going to have to update for the 21st century the same kinds of regulations that we put in place for the 20th century.
And if we do that effectively, then we can prevent a situation where folks can take enormous risks knowing that, heads I win and tails, you lose.
That is going to -- we're going to have to take some critical steps. And I think the next administration has to be committed to upgrading those financial regulations. But right now what we have to do is make sure that the capital markets are working so that people, small businesses, folks who are waking up in the morning, know that their money market funds are protected, they know they can make payroll, and that as much as possible we are able to ensure that on Main Street some of the pain is limited.
OBAMA: And I think what has to be clear is, is that whatever is set up is not bailing out shareholders and CEOs. They need to take their losses because they were enjoying the upside when the times were good.
QUESTION: Two questions.
You've said on the campaign trail you're tough enough. And it looks like there's going to have to be a tough interaction with the administration over whether there's going to be a stimulus bill added to this overall package. I'm told that Pelosi and Reid last night pressed Secretary Paulson. He was noncommittal.
How tough are you prepared to be to as the Democratic nominee to see the stimulus plan is in this final legislative package?
Two, Paulson said this morning hundreds of billions of dollars are going to be required to put this together. With that as a reality, can you looking forward still promise the tax cuts to the middle class you've talked about? And, with capital such a crucial issue right, do the taxes on dividends and other high-end taxes make sense?
OBAMA: Good. All right. Good questions.
There is a relationship between economic stimulus that I think needs to take place right now and long-term tax cuts for the middle class.
One of my central beliefs about our economy has been that -- a theory that gives more to the most thinking that it's going to trickle down on everybody else is not going to work; that the more that we've got broad-based prosperity and families have higher wages and incomes, the better off the economy is going to be as a whole. And that's especially true at a time when we've got recessionary tendencies.
So I think now more than ever we've got to have the kind of broad-based middle class tax cut that I've talked about for 95 percent of working families. And effectively, the stimulus package is a downpayment on that long-term shift in our tax code.
OBAMA: So I think it is very important that, even as we stabilized the financial system, that we understand that people have been hurting long before Wall Street was hurting, and that if people are continuing to not be able to pay their bills at the end of the month, if they haven't seen wage increases when their gas and grocery prices, their health care prices, the price of sending their kids to college have all skyrocketed, that the underlying weakness in terms of consumer purchasing power, the underlying weakness in terms of people being able to make their payments on their homes, that's going to continue to put a drag on the capital market.
So this is -- this is a fundamental difference in philosophy that also happens I think to be the right prescription for what's ailing the economy.
But short term, you know, in the next several days and weeks, we've got to make sure that Secretary Paulson and Bernanke have the broad authority they need just to make sure that capital markets are working the way they need to.
QUESTION: You said it's the time for leadership. Senator McCain is outlining a plan today. You say you're waiting on a detailed blueprint. You have an Democratic economic braintrust surrounding you here. Does this suggest you're sitting on the sidelines, that this is...
OBAMA: No, no.
Well, first of all, you know, I took a look at what Senator McCain had offered. And essentially it's about as detailed as the one paragraph that he had offered yesterday and that I had talked about yesterday and that my -- one of my chief economic advisers, Paulson, had written about several -- excuse me -- Volcker had written about just a couple days ago in the Wall Street Journal.
I am glad to see that Senator McCain agrees with not just me but also Secretary Paulson and Bernanke that at some point we're going to need sort of institutionalized structure to deal with the underlying problems of bad mortgages and -- and some of the bad assets that some of these markets have.
In my conversations with Secretary Paulson, Bernanke as well as my advisers, what is absolutely clear is that you don't put together something like that on the cuff. You don't do it in a day. We've got to do it in an intelligent, systematic, thoughtful fashion. And, you know, I'm much less interested at this point in scoring political points than I am making sure that we have a structure in place that is sound and is actually going to work.
Right now, though, the problem is the capital markets and making sure that we get something in place quickly to ensure that the treasury secretary and the Fed have the authority they need to get capital flowing again. And I think that what we don't want to do is get too bogged down in some complicated legislative wrangling.
OBAMA: There's going to be a lot of time for us to be in a big argument about how some of these future plans should be structured.
QUESTION: Senator, because we are in South Florida, does that plan involve working closer with those nations in Latin America that have not wanted to work with the United States before?
OBAMA: Well, as I said before, I think it's important for us to get the G-20 involved in this conversation.
We now have global markets. It's insufficient for us to think in isolation that somehow we can cordon ourselves off or that other countries can cordon themselves off from us.
Now, this has been true for a pretty long time. Some of you will recall that Bob Rubin faced some similar problems when he was treasury secretary when we had the Mexican peso crisis. But it's even more true now. And the financial instruments that have been developed are even more complex. We've got even more leverage and debt and borrowing that's been taking place that makes the current situation that much more complex and interconnected.
So it's going to be very important for Secretary Paulson and Chairman Bernanke to coordinate with their counterparts in other countries so that everybody is moving in concert and everybody is rowing in the same direction.
QUESTION: Secretary Paulson says that it's going to cost hundreds of billions of dollars, the bailout plan. Senator Shelby said perhaps even a trillion dollars. Do you believe that this is an appropriate amount?
And secondly, if you were president, would you set a limit, a cap, per se, on the kind of burden that taxpayers would have in bailing out these financial institutions?
OBAMA: Well, keep in mind, the -- and I don't want to get too technical here, but what the secretary is asking for is authority to do what's required to get the capital markets straight. He is not saying -- as I understand it, and we haven't yet seen the details -- that he is putting all this money at risk, whatever the amount is, and that that taxpayer money is automatically going to be expended.
I don't want to comment on a particular amount, partly because I have not received a specific proposal from the treasury secretary at this point. Here's what I would say as president. As president I would say to Secretary Paulson and Chairman Bernanke: "Do what's required to make sure that people's money market accounts are protected. Do what's required to make sure that small businesses have credit lines to allow them to make payroll. Do what's required to make sure that the economy is running and that ordinary people are able to go about what they do every single day, which is work hard and support their families."
And what we then have to do is also make sure that taxpayer money is not being used to bail out bad decisions that are made by investors, shareholders or CEOs on Wall Street.
And those principles, I think, are compatible. I think that Secretary Paulson is mindful of them. He's certainly heard from me that we don't want -- we don't want bailouts of folks who have been -- taken bad decisions.
But what we also want to make sure of is, is that the economic system as a whole continues and that ordinary people are able to wake up on Monday and keep doing what they've been doing.
QUESTION: Have your advisers told you that the situation has stabilized, or should we expect more failures and more bailouts to come?
OBAMA: Well, here's where I think we are.
The markets have a lot of worry right now about what assets are good out there. Whether -- if they make a short-term loan to somebody they're going to get repaid. And so everybody is locked up. Everybody's freezed up. Everybody's hesitant about making what used to be routine loans.
And the job, then, of the Treasury and the Federal Reserve is to break through that psychology and let people know when -- you know, if you make this loan today, then tomorrow, folks are going to be able to pay it back, and to break this self-fulfilling prophecy that has gripped the market at this point.
Because it's not just a problem of underlying assets and values but it's also market psychology, it's hard to say how the market responds over the next week or two weeks or three weeks.
But what I can say is that if the treasury secretary has the broad authority that he needs, if the Fed chairman has the broad authority that he needs, and if the president is clear to both of them of the principle that I just outlined -- make sure the capital markets are working and make sure that we are not using taxpayer dollars to bail out people who are making very bad decisions and walking away with millions of dollars -- then I believe that the market should settle down.
I believe that the market should be able to say to itself: "You know what? We are going to be able to get through this difficult period of time" -- understanding that we're then going to have to still set up some institutional mechanisms to deal with some of the underlying problems of the economy. And that's what I've been talking about throughout the course of this campaign.
The short-term weakness in the capital markets is a reflection of longer-term problems that we have in our economy. It has to do with the fact that wages and income have not gone up. It has to do with a tax code that has been skewed against folks on Main Street.
It has to do that we have underinvested in infrastructure, underinvested in our education system. It has to do with the fact we have not managed our federal budget with any kind of discipline and so we have been loading up enormous amounts of debt.
It has to do that we have spent well over half a trillion dollars, soon to be a trillion dollars, on a war in Iraq. Despite the fact that Iraqis are now running surpluses, we're still spending $10 billion a month there.
It has to do with the fact that we've got a broken health care system that is enormous strain on businesses as well as families.
And so, if we recognize that there are these longer-term structural problems that have to be dealt with, starting with the housing market, and there's some confidence that, in fact, we're going to change economics (sic) philosophies from what we've seen over the last eight years to get those things right, then the key is for us now to just get through these turbulent times and for the market to say to itself, "We can solve these bigger problems. Let's make sure that we don't compound them with -- with fear and panic right now."
Thank you, guys. Appreciate it.