We’re now in the midst of an epic financial crisis, which ought to be at the center of the election debate. But it isn’t.This article follows up on Krugman's series of blog posts on the weird behavior of the market and the increasingly limited options the Federal Reserve has to address the matter. (Oh, just go read him. If you aren't, you should.) In Weird Interest Rates, he specifically notes the way in which manipulation of interest rates is coming to an end in its effect on the crisis.
Now, I don’t expect presidential campaigns to have all the answers to our current crisis — even financial experts are scrambling to keep up with events. But I do think we’re entitled to more answers, and in particular a clearer commitment to financial reform, than we’re getting so far.
Taming the Beast
Building off that post and citing a Vlog by Prof. Brad DeLong, the Orange County economics blogger Calculated Risk (And you should just go read him and his co-blogger, Tanta, too, to keep up with housing markt news.) notes that with standard market manipulation mechanisms (try saying that five times fast) losing their effective power, the federal government needs to be ready to step in with something more substantive and radical, DeLong Sounds the Alarm. CR notes:
I do not believe we've reached what Professor DeLong calls Stage III of a financial crisis - and I don't think the Fed is out of ammunition - but I think DeLong is correct that we should be planning ahead. The Fed can only do so much, and DeLong is arguing we should be prepared if it becomes clear the Fed is ineffective.So, Krugman, DeLong and Calculated Risk are all noting that we need someone to offer up some leadership on the ecopnomic front.
Hillary made a major economic speech today in Philadelphia, tying preserving housing with stabilizing the economy. As much as I dislike the outrageous housing bubble, especially as it drove up house prices in San Diego to the point where it was only two financial accidents that I could buy my current house, the abrupt deflation of that bubble is what is driving the economic crisis. There needs to be a way to temper the downturn, keep the prices deflating in a controllable way, keep people in homes where possible to prevent other market dislocations, and manage to do so in a way that is not yet another taxpayer bailout of Wall Street speculators.
Hillary's on top of it:
"Over the past week, we’ve seen unprecedented action to maintain confidence in our credit markets and head off a crisis for Wall Street Banks. It’s now time for equally aggressive action to help families avoid foreclosure and keep communities across this country from spiraling into recession," said Clinton. "The solution I’ve proposed is a sensible way for everyone - lenders, investors, mortgage companies and borrowers - to share responsibility, keep families in their homes, and stabilize our communities and our economy."
Hillary Clinton believes that immediate, bold action is required to unfreeze our mortgage markets and help keep millions of families in their homes. The four-part plan to protect American homeowners and address the housing crisis is as follows:
- New Action to Help Millions of At-Risk Homeowners Restructure their Mortgages and Stay in Their Homes. Senator Clinton believes we should extend the Federal Housing Administration’s (FHA) capacity to guarantee restructured mortgages as proposed by Rep. Frank and Sen. Dodd. She believes that using an FHA guarantee to encourage private sector auctions of large mortgage pools is the preferable way of unfreezing our struggling mortgage market. However, she announced today that the government should stand ready to play a more proactive role in purchasing, restructuring, and reselling underwater mortgages.
- A High-Level Emergency Working Group on Foreclosures to Investigate How to Achieve Broad Restructuring of At-Risk Mortgages. Hillary believes we cannot afford to wait until Congress passes legislation to determine the viability of the Dodd/Frank auction mechanism, or whether it will be necessary for the FHA or a similar entity to act as a temporary intermediary purchaser of mortgages. Therefore, she is calling on President Bush to appoint an Emergency Working Group on Foreclosures to address this question within the next three weeks. The group could be headed by eminent leaders like Alan Greenspan, Paul Volcker, and Bob Rubin - each of whom supports one of the remaining candidates in the Presidential race.
- Clarifying Legal Liability for Mortgage Servicers to Help Unfreeze the Mortgage Market. Many mortgage servicers who want to work with families are deterred out of fear of litigation. Senator Clinton is introducing legislation to provide them with legal protection when they act to help struggling homeowners to modify mortgages.
- A New Housing Stimulus Package With at Least $30 Billion for States and Localities to Fight Concentrated Foreclosures. After passing a $168 billion stimulus package with virtually no action to address the housing crisis that is driving down our economy, Senator Clinton is calling for a second, housing-focused stimulus package. She believes that if we can extend a $30 billion lifeline to avoid a crisis for Wall Street banks, we should extend at least $30 billion to help states and localities fight foreclosures in their communities.
This is what being Presidential looks like. It is going out and making major speeches on wonkish topics in a way that is accessbile to ordinary people and shows that you have a freaking clue of what it means to be working class and over-extended. It is proposing new ideas and strategies when the old measures aren't working.
This is why I support Hillary for President. She's talking about things that will materially affect MY life. I may have a good mortgage and not be in any danger of being upsidedown, but my house is already valued at less than the purchase price. I can see houses in my neighborhood going into foreclosure. I can see the way in which tight credit and economic inflexibility will impact the business improvements in my area - the business district has lost all of the funding it used to get from the City and is having to ask for assessments from local businesses and homeowners.
I support the person who studies Krugman to find out his ideas on economics and finance in order to improve her domestic policies, not the one who digs up dirt on the professor to run self-serving smear campaigns.