Obama spoke about the current economic crisis in Colorado yesterday; video and text of speech as prepared at link.
And, for those who keep saying that Obama hasn’t been giving “specifics” of his policies, please see his web page on the economy, and, last but far from least, the speech he gave exactly one year ago today — literally on Wall Street — addressing the dangerous situation with our unregulated markets directed only by greed (also with video).
There are a number of lessons that we must learn from this going forward. We know that much of this could have been avoided if the market operated with more honesty and accountability. We also know we would have been far better off if there were greater transparency and more information had been available to the American people.
To that extent, I believe there are a few steps we should take to prevent future crises of this kind and restore some measure of public trust in the market:
First, we need more disclosure and accountability in the housing market. To ensure that potential homeowners aren’t tricked into purchasing loans they can’t afford, I’ve proposed updating the current mortgage rules to establish a federal definition of mortgage fraud and enact tough penalties against lenders who knowingly act in bad faith. I’ve also proposed a Home Score system that would create a simplified, standardized metric for home mortgages, sort of like the APR. This would empower Americans to make smart decisions by allowing prospective buyers to easily compare various mortgage products so they can find out whether they can afford the payments. And I believe we should finally enact the meaningful mortgage disclosure laws that the mortgage industry has been lobbying against for far too long.
Second, I believe that if we hope to restore trust in the markets, we must be able to trust the judgment of our rating agencies. The failure of government to exercise adequate oversight over the rating agencies will cost investors and public pension funds billions of dollars – losses we have not yet fully recognized. We cannot let the public trust be lost by a conflict of interest between the rating agencies and the people they’re rating. As Arthur Levitt recently reminded us, this happened when rating agencies continued to give a rosy outlook for Enron despite its impending bankruptcy. And of course we saw it this year when subprime mortgage loans continued to receive strong ratings despite repeated warnings of the instability of the mortgages and the impending slowdown of the housing market.
Here’s the real danger – if the public comes to view this like the accounting analyses of Enron, the markets will be ravished by a crisis in confidence. We must take steps to avoid that at all costs, and that is why I believe there should be an immediate investigation of the relationship and business practices of rating agencies and their clients.
The third thing we need to do is look at other areas in the market where a lack of transparency could lead to similar problems. Many of the people who hold these subprime mortgages are now shifting their debt to credit cards, and if they do not understand the commitments they’re taking on, or are subjected to predatory practices, this could fester into a second crisis down the road. That’s why I’m proposing a five-star credit card rating system to inform consumers about the level of risk involved in every credit card they sign up for, including how easily the company can change the interest rate. If more Americans were armed with this kind of information before they purchased risky mortgage loans, the current crisis might not have happened. Now that so many are in debt, we shouldn’t let the same lax standards create another.
Finally, while it’s not my place to comment on the actions of the Fed, I have heard many of you say that you hope for a sizable rate cut tomorrow to soothe the market turmoil.
But I also know that there are nearly 2.5 million Americans who may lose their homes no matter what happens tomorrow. And so for those institutions that are holding these mortgages, I ask them to show some flexibility to folks trying to sell or refinance their houses. They are in the same liquidity pinch as companies are, but they don’t have the same resources available to protect themselves.
Now, in addition to these immediate steps, I also believe there is a larger lesson to be learned from the subprime crisis.
In this modern, interconnected economy, there is no dividing line between Main Street and Wall Street. The decisions that are made in New York’s high-rises and hedge funds matter and have consequences for millions of Americans across the country. And whether those Americans keep their homes or their jobs; whether they can spend with confidence and avoid falling into debt – that matters and has consequences for the entire market.
We all have a stake in each other’s success. We all have a stake in ensuring that the market is efficient and transparent; that it inspires trust and confidence; that it rewards those who are truly successful instead of those who are just successful at gaming the system. Because if the last few months have taught us anything, it’s that we can all suffer from the excesses of a few. Turning a blind eye to the cronyism in our midst can put us all in jeopardy. And we cannot accept that in the United States of America.
So I promise you this. I will be a President who believes in your success. I will value your contribution to this country and I will do what I can to encourage it, because I understand that how well you do is inextricably linked to how well America does. And I will always be a strong advocate for a market that is free and open.
But today I am asking you to join me in saying that in this country, we will not tolerate a market that is fixed. We will not tolerate a market that is rigged by lobbyists who don’t represent the interests of real Americans or most businesses. And we will not tolerate “what’s good for me is good enough” any longer – because the only thing that’s good enough is what’s best for America.
I am also asking you to join me in doing something else today. I am asking you to remind yourselves that in this country, we rise or fall as one people. And I am asking you to join me in ushering in a new era of mutual responsibility in America.
Now, that’s judgement, experience, forsight and change you can believe in!
What was John McCain — by his own admission the ultimate de-regulator, who for his entire political career has supported bills that eliminated any teeth from government oversight agencies — proposing yesterday?
[W]hen I am president […] when any Wall Street operator abuses the trust of the public, then they will face the consequences, and they will have a fight on their hands with the president of the United States.
I will fight to reform Wall Street and to protect the savings and pensions of the American people. I will make sure that Washington works for your interests, and not the special interests. I will fight to make it easier for small business owners everywhere to grow and hire. I will fight to make sure you can afford a home loan or a student loan or a small business loan. I will fight to make sure we create more jobs here at home and prosperity for all Americans.
Emphasis mine. What do you suppose his real message was to his war-cheerleader fans?
And let’s look at McCain’s activities (just over) a year ago: Facing down a group of high-schoolers worried about their country and their future. Maybe you heard about it — he called one of them “a little jerk” for asking about his age, and had no idea what “LGBT” meant — but that didn’t stop him from supporting DADT (he knew what those initials meant) and a ban on same-sex marriage.
Apparently, McCain wants to fight, alright — a war of cultural distractions and flip-flopping policy positions.
Update: Adam B at Daily Kos reminds us about Prof. David Currie’s reading of the Constitution, available for listening online or on your favorite media player. Adam calls our particular attention to Article II.
And while Big Orange, check out this post that showcases a roundup of writers saying what I was saying about McCain’s sudden reversal on market regulation.