More 3 a.m. Ads

The Clinton camp release another “3 a.m.” ad, this time attacking John McCain on the economy.

Steve Schmidt, a senior advisor to John McCain, quickly shot back with what may be the line of the week.

“With ads like that, it’s more likely the call at 3 a.m. is ‘Senator, you just lost another superdelegate.’”

Also, the John McCain camp quickly countered with their own “3 a.m. ad”, addressing the economy and taxes.

Add comment April 2nd, 2008

Obama Discusses The Economy On CNBC

Barack Obama sat down with Maria Bartiromo to discuss the economy on CNBC’s Closing Bell. Discussion included somewhat detailed discussion ranging from the capital gains tax to the minimum wage.

Full Transcript (continued):

MARIA BARTIROMO, host: Senator, thank you for joining us.

Senator BARACK OBAMA: Thank you so much for having me.

BARTIROMO: Nearly seven months before Election Day, we’ve got foreclosures on the rise…

Sen. OBAMA: Right.

BARTIROMO: …we’ve got financial assets shrinking, gasoline above $3 a gallon. Detail for us your economic plan to take us higher.

Sen. OBAMA: Yeah. Well, it’s going to start with dealing with the immediate crisis, both in the financial markets and in the housing market. And obviously, those things are connected.

On the housing market, to prevent foreclosures, I think it is important for us to create some bottom, some floor, give people some sense of where does this end. And so I am a strong proponent of the proposal that Chris Dodd and Barney Frank have put forward, having the FHA step in to help stabilize the market. It’s not a bailout for borrowers or lenders, but what it says is we will rework some of these loan packages so that they’re affordable. And, you know, everybody’s going to have to take a haircut, the borrowers and the lenders, but it won’t be as bad as if a foreclosure took place. So that’d be step number one.

Step number two, I think to stabilize and provide confidence in the financial markets it is appropriate for the Fed to take some of the actions that it has. But I think it is also important to make sure that we’ve coupled that with some new regulatory structures. If the Fed is going to be a lender of last resort to investment banks, then it is, I think, legitimate to make sure that those banks are subject to some sort of requirements, both in terms of liquidity and capital, to assure that we’re not seeing excessive risks taken so that they get all the upside and the Fed gets all the downside. So that would be, I think, a second important step.

And then the third thing that I think is important for us to do is to understand that the economy long term has been out of balance for quite some time, even before this current crisis. I mean, we had high corporate profits, enormous rises in productivity over the last decade but wages and incomes have flatlined. And so you had a lot of concentrated wealth at the top, but ordinary folks were getting hammered with rising gas prices, rising costs of health care, rising costs of college tuition. And so creating a tax code that is more equitable and making sure that we’re making investments in things like infrastructure and clean energy that can put us on a more stable long-term competitive footing, I think that has to be part of the package as well.

BARTIROMO: I want to ask you about the mortgage plan.

Sen. OBAMA: Sure.

BARTIROMO: But since you ended with taxes, let me pick up right there, for investors.

Sen. OBAMA: Yeah.

BARTIROMO: How do you plan to change the tax code when it comes to capital gains? How high will that 15 percent rate go?

Sen. OBAMA: Well, you know, I haven’t given a firm number. Here’s my belief, that we can’t go back to some of the, you know, confiscatory rates that existed in the past that distorted sound economics. And I certainly would not go above what existed under Bill Clinton, which was the 28 percent. I would–and my guess would be it would be significantly lower than that. I think that we can have a capital gains rate that is higher than 15 percent. If it–and if it, you know–when I talk to people like Warren Buffet or others and I ask them, you know, what’s–how much of a difference is it going to be if it’s 20 or 25 percent, they say, look, if it’s within that range then it’s not going to distort, I think, economic decision making. On the other hand, what it will also do is first of all help out the federal treasury, which is running a credit card up with the bank of China and other countries. What it will also do, I think, is allow us to make investments in basic scientific research, in infrastructure, in broadband lines, in green energy and will allow us to give us–give some relief to middle class and working class families who have been driving this economy as consumers but have been doing it through credit cards and home equity loans. They’re not going to be able to do that. And if we want the economy to continue to go strong, then we’ve got to make sure that they’re getting a little relief as well.

BARTIROMO: But it’s not just the Warren Buffets of the world who own stocks, so…

Sen. OBAMA: Of course not.

BARTIROMO: …let’s hypothetically say that…

Sen. OBAMA: Right.

BARTIROMO: …cap gains tax goes from 15 percent to 25 percent.

Sen. OBAMA: Right.

BARTIROMO: You’re impacting a lot of people.

Sen. OBAMA: Right.

BARTIROMO: A hundred million Americans own stocks today.

Sen. OBAMA: Absolutely.

BARTIROMO: So it’s not just the rich.

Sen. OBAMA: No, no, no, absolutely. And that’s why I think that it may be, for example, that you could structure something in which people with certain incomes were exempted from this increase and it would stay at 15. The broader principle that I’m interested in is just making sure that we’ve got a tax code that is fair for all Americans. And I think it is not unreasonable to say–you know, I know that we’ll get some arguments from some folks on this, but it’s not unreasonable to say that those of us in the upper brackets have benefited disproportionately from a globalized economy; that those benefits have been compounded by the Bush tax cuts and that for us to roll back some of those tax cuts and to put this economy on a more stable fiscal footing and to make investments in the American people so that they can afford a decent life, that that is actually good long term for our economy and also good for investors and Wall Street.

BARTIROMO: So what about the top marginal rate for ordinary income? Who ought to pay more and who should pay less?

Sen. OBAMA: Well, you know, what I’ve said is that we should go back to probably a top marginal rate of 39 percent what it was before the Bush tax cuts. So I would roll back those Bush tax cuts, I would not increase taxes for middle class Americans and in fact I want to provide a tax cut for people who are making $75,000 a year or less. For those folks, I want an offset on the payroll tax that would be worth as much as $1,000 for a family. Senior citizens who are bringing in less than $50,000 a year in income, I don’t want them to have to pay income tax on their Social Security. And as part of my overall approach to housing, I actually want to provide an additional 10 percent mortgage deduction, a credit, mortgage interest credit, for those who currently don’t itemize. Because if you live in a house that’s pretty expensive, like I do, and I itemize, I get a pretty big break from Uncle Sam. If you own a $100,000 house and you’re making 65, $75,000 a year, you’re not getting that same deduction. I think that they deserve a break as well. That will actually help relieve some of the pressure on homeowners.

BARTIROMO: But can you really look at this sort of like an umbrella standpoint? I mean, we are in very, very unique times right now.

Sen. OBAMA: Yes.

BARTIROMO: Why raise taxes at all in an economic slowdown? Isn’t that going to put a further strain on people?

Sen. OBAMA: Well, look, there’s no doubt that anything I do is going to be premised on what the economic situation is when I take office. I’m going to be sworn in in January, we don’t know what the economy’s going to look like at that point. And, you know, the thing you can–you can be assured of is that I’m not going to making these decisions based on ideology. I’m not a dogmatist. I know that some, you know, my opponents to the right would like to paint me as this wooly-eyed, you know, liberal or wild-eyed…

BARTIROMO: You’re not a liberal?

Sen. OBAMA: The–but my attitude is that I believe in the market, I believe in entrepreneurship, I believe in opportunity, I believe in capitalism and I want to do what works. But what I want to make sure of is it works for all America and not just a small sliver of America. And if it turns out–if somebody can make a persuasive argument to me that, you know what, what we need at this juncture, at this particular point in time is a different set of policies than some of the ones that I’ve proposed, I’m always going to listen to people. Because I think one of the problems, in fact, with the Bush administration has been its rigidness when it comes to economic policy. I mean, you ask them any question, they’ll say tax cuts. It doesn’t matter what the problem is, if it’s, you know, our trade deficit: tax cuts. If it’s, you know, slowdown in manufacturing: tax cuts. You know, at a certain point, you know, if you’ve only got one arrow in the quiver, then you’re going to have problems.

BARTIROMO: Let me move on from taxes. I don’t want to spend all the time there. Let’s talk about small business. This is the one area of the economy that really is creating jobs, small business.

Sen. OBAMA: Yes, absolutely.

BARTIROMO: You want to index the minimum wage to inflation, we’ll see the minimum wage go up every year. You are looking to strengthen the unions. Basically, making costs go up for small business. Why put a further strain of expenses, higher expenses, on the one place in the economy that’s actually creating jobs?

Sen. OBAMA: Well, actually, you know, that’s not entirely true. It is true that I think that having the minimum wage go up every 10 years is a bad idea and it’s not good for small businesses, because they get socked with sudden jumps as opposed to something more gradual that they can build into their cost structures. It is true that I think that unions are a useful thing. But generally that’s not affecting the average small business, that is typically much more targeted at large companies who, again, wages and incomes have not gone up for the average worker over the last seven years. There’s a reason for that, and that’s a problem. I actually want to provide more tax breaks to small businesses, because I think they are the primary generator of income.

And one of the areas that I want to help small businesses on is their health care costs, which are crushing them. And if you talk to a lot of small business owners, not only are they having problems if they provide health care to their employees, but they’re also having problems paying health care for themselves. And if we can provide them significant relief there, then I think that there are going to be a whole bunch of small businesses who are going to be much more successful in building their businesses and expanding it over time.

BARTIROMO: But you say that, but we’ve had small businesses on, they’re terrified. They feel that their costs are about to soar.

Sen. OBAMA: I know. Small businesses often get terrified because people ramp up. The chambers of commerce, anytime you talk about the minimum wage, the sky is falling. The sky doesn’t fall. And as I said, the–what is important is making sure that this happens over a gradual period of time. Instead of us lurching back and forth, what I want to do is to create a climate for sustained economic growth. Small businesses are going to be the heart of that, and that’s why we’re going to give a large amount of support to small businesses in the form of tax breaks for investment and in making sure that their health care costs are dealt with.

BARTIROMO: Let’s talk about spending. You’ve got a $400-plus billion deficit. How do you plan to pay for the new health, education, you mentioned green technology, social programs…

Sen. OBAMA: Right.

BARTIROMO: …in the middle of a recession?

Sen. OBAMA: Well, I tell you what…

BARTIROMO: Away from tax cuts?

Sen. OBAMA: Right. The two points I would make. Number one, as I said, I’m going to have to take a look at what revenues are coming in when I take office because, you know, I’m not ideological and I think it is very important for us to stick to a principle of pay as you go. If I’m going to cut taxes for the middle class, as I’ve proposed, that means that I’ve got to either end some tax breaks elsewhere or cut spending. And if I want to increase spending, then I’ve got to find offsetting revenues or cut programs that aren’t working. That’s a principle that I believe in strongly and I will run on and implement when I’m president.

What’s interesting, though, is The Wall Street Journal, I think–actually a columnist looked, in The Wall Street Journal, at does Obama’s policies in fact add up? Do the numbers add up? And the conclusion was, yes. Because not only have I called for an end to the war in Iraq, which would not provide all the money that’s being spent there–some of that’s going to have to go to resetting our military, dealing with veterans and so forth–but there will be some money that we can use for other things.

Number two is the rollback of the Bush tax cuts on the top 1 and 2 percent. That will in fact create additional revenue. And the third thing is the cap and trade system that I’ve proposed to deal with climate change and to increase energy independence. That potentially generates billions of dollars that we can reinvest in solar, wind, biodiesel, creating jobs here in America that can’t be exported. And so when you tally it all up, all my proposals pay for themselves.

Now, as I said before, it could be that revenues are so short in a year’s time that we’ve got to make some assessments. And I am not going to initiate programs that can’t be paid for.

BARTIROMO: So name three spending programs you would cut to balance the budget.

Sen. OBAMA: Oh, you know, there are probably some weapons programs that I think are not serving our national security interests that need to be examined, and we’ve got to do an audit there. There are reforms that need to be made in our purchasing processes, where–simple things, you know. If we actually made sure that every government employee had a single, you know, debit card or credit card, then negotiated with large purchasers to get the discounts that any other large purchaser would get, we could lop off 10 percent of some of our major purchases by the federal government. Our travel allowances and expenses are a major problem. We could save several billion dollars just in how we set up government travel. So there are a whole bunch of areas where we can make some significant savings.

I will tell you, though, that historically when–you know, the fact is that the federal government primarily spends its money on Social Security, on Medicare and Medicaid, and on defense. And that’s the bulk of our spending.

The biggest thing we’ve got to do is get control of our health care spending, and that’s why the health care plan that I’ve proposed, although costing some money in the front end–we’ve got to help rural hospitals invest in, you know, health IT. We’ve got to make sure that we are bringing people into coverage so that they’re not going to the emergency room. Short term, that will cost us some money. Long term, the more we emphasize prevention, the less likely we are to pay huge bills down the road. That’s the only way we’re going to get control of health care inflation. And if you talk to any executive, as well as any actuary who’s looking at government spending, our biggest crisis looming in the horizon has to do with our health care costs. And the only way to really solve it long term is to make sure that we are making for a healthier America and improving the quality of care so that we get more bang for our health care dollar.

BARTIROMO: How about trade? You’ve made the point that you want to improve relations around the world…

Sen. OBAMA: Yes.

BARTIROMO: …and yet you want to renegotiate NAFTA, you are not in favor of some other trade policies.

Sen. OBAMA: But I’m in favor of some.

BARTIROMO: OK.

Sen. OBAMA: Yeah.

BARTIROMO: Tell me about the trade policies that you’d like to look at…

Sen. OBAMA: Yeah.

BARTIROMO: …and particularly NAFTA, renegotiating that.

Sen. OBAMA: Yeah.

BARTIROMO: Why potentially impact the one area of the economy that’s actually doing very well, exports and trading, and opening up markets for American companies?

Sen. OBAMA: Well, look, I believe in trade and I’ve said it repeatedly. And, you know, I have voted for trade agreements. I voted for the Peru Trade Agreement, much to the chagrin or some people who objected about it. I voted for the Oman trade deal. It is true that I voted against CAFTA and I voted–and I am concerned about NAFTA because they don’t have the environmental and labor protections written into this legislation that ensure some basic standards, make sure that child labor laws aren’t being circumvented, making sure that you don’t have forced labor. I think it is important in our dealings with China to make sure that we are tougher bargainers. My problem with our trade agreements right now is not that I feel we can’t compete in the global economy. I think we’ve got the best workers on earth. I think the problem is is that we’re not very good bargainers. We–our trade mentality dates back to the ’60s and the early ’70s when we were so dominant in the world economy that basically if people sent their goods into this country without reciprocity, it wasn’t really going to have a dent on our economy. Well, the fact is China, Brazil, Korea, you know, they’re not your dad’s China, Brazil or Korea. They are now major competitors of ours. We should want real trade with them, but it’s got to be on a reciprocal basis. And we should put some pressure on them to improve how they treat workers, to deal with issues of environmental standards, to deal with safety standards. And part of the problem that we’ve got right now in our trade agreements is that US companies may move over there, get out from under basic safety standards that are important to US consumers, then the goods get shipped back into the United States and suddenly we’ve got toys with lead paint on them.

That is not good for US consumers and I don’t think it’s good for business long term. But, you know, one notion I want to dispel is the notion that somehow I’m opposed to free trade. I think it is important for us to have a trade regime. And I think it’s good that China and India are growing. Ultimately they may be markets of ours and, you know what, there’s just a human element to wanting to see billions of people scratch their way out of poverty. That is in our long-term interest.

BARTIROMO: What happens if the Mexicans and Canadians say, `We don’t want to renegotiate.’ Do we go back to the policy in place before NAFTA?

Sen. OBAMA: Well, I think that, you know, let me have those conversations with the president and the prime minister and see if we can negotiate something that makes sense for all sides. I mean, keep in mind, Mexico has some of these similar problems, you know, some of the promises that were made about the improvements in the standard of living for Mexico. Workers have not been borne out as a consequence of NAFTA. Part of the problem we’re having with immigration right now has to do with a much more efficient US agricultural and agrobusiness operations going into Mexico and decimating Mexican farmers. They have been displaced first to Mexico City and other urban areas, and increasingly they come into the United States.

And so, again, the principle that I have in general when it comes to economic policies: a belief in free markets, a belief in opportunity, a belief in trade, but wanting to make sure that in all these areas that somebody’s thinking about the little guy; that somebody is making sure that the economy is working for everybody and not just some people. And that, I think, is a basic difference between myself and George Bush and increasingly, it appears, John McCain, as well.

BARTIROMO: But you want to put pressure on the companies and the people that are actually creating jobs, during a recession.

Sen. OBAMA: Well, you know, I think part of my argument is part of the reason we’re in a recession is because we have an unbalanced economy. Look, you know, Henry Ford was the first one to say, `If I don’t pay my workers enough to buy my cars, my business isn’t going to be around for a long time.’ Part of the genius of America has always been that we have a shared prosperity and a broad-based middle class, and that we make investments in roads and bridges and other infrastructure that allows the market to work efficiently. And we’ve got a regulatory system so that investors can trust the market and don’t feel like insiders are going to be taking advantage of them. That’s what makes the market run. And when we lose that balance, what ends up happening is in the short term you’ve got some people who make out like bandits. And the only reason that we haven’t seen some of these problems in the US economy previously is because consumers had been driving this, even though their wages and incomes haven’t been going up, because they’ve been able to use their credit cards and home equity lines as an ATM. That’s gone away. And so the question now is who’s going to drive the economy, if not consumers? And the only way that we can make sure that consumers are able to drive that economy is if in fact they’ve got some money in their pockets. And right now they don’t, because they are getting squeezed hard.

BARTIROMO: Final question, Senator.

Sen. OBAMA: Yeah.

BARTIROMO: And this is just in the news right now, away from business, the church bulletins. A lot of people say that they were–are anti-Semitic, anti-American. How often did you read them? Did you find them troubling?

Sen. OBAMA: You know, the–you know, I’ve, I think, talked thoroughly about, you know, the issue with Reverend Wright. And, you know, everybody, I think, who examines the church that I attend knows that it is a very traditional, conventional church. Reverend Wright has made some, you know, troubling statements and some appalling statements that I have condemned. He’s the former pastor of that church. And I think that–and when I travel around the country, what people are really interested is making sure that, if I’m going to be the next president, that I can actually help them stay in their homes, get a job, send their kids to college. That’s something that’s shared by people across races, religions. And part of what I hope to do in this campaign and as president is to get us beyond these divisions that distract us from our common challenges and our common opportunities and move the country forward.

BARTIROMO: Senator, would you like to add anything else?

Sen. OBAMA: I had a wonderful time. I hope I get a chance to talk to you again.

BARTIROMO: Do you think that the Fed made the right move in terms of bailing out the financial system? Final question. A final–you know, I’m just trying to do it on BusinessWeek–I promise you, I promise you.

I’m doing a piece for BusinessWeek on you for Friday and I’m trying to do both CNBC and BusinessWeek.

Sen. OBAMA: Right.

BARTIROMO: That’s why, I’ve tried to do both.

Sen. OBAMA: Well, now that–now this is going to be really good story, because she got at least five final questions. Absolutely.

BARTIROMO: (Unintelligible). No pressure, no pressure.

Sen. OBAMA: No, no, no, I don’t mind. The–no, no. Look, the–I think that–you know, I wasn’t privy to Bear Stearns’ balance sheets. I think there’s no doubt that we want the Fed stepping in in emergencies, and no other government agency could step in sufficiently, quickly to prevent what could have been a domino effect. But the one, you know, basic principle that I think is important is that if the Fed is going to be a lender of last resort to investment banks, then they’re going to have to be subject to some of the same regulatory requirements that commercial banks are subject to. And I think Henry Paulson admitted as much in some of his statements yesterday. And I know that the Senate Banking and Finance Committees are going to be examining the nature of this transaction to make sure that it was fair to all parties involved.

BARTIROMO: Thank you so much, Senator.

Sen. OBAMA: All right. Thank you.

BARTIROMO: Good to see you.

Sen. OBAMA: All right.

Thx to Time.com.

2 comments March 27th, 2008

Barack Obama’s Speech On The Economy At Cooper Union in New York City

Barack Obama gave a major speech today at Cooper Union in New York City where he focused on the state of the economy. Obama was introduced by New York City Mayor Michael Bloomberg.

Full Transcript:

I want to thank the mayor of this great city, Mayor Bloomberg, for his extraordinary leadership. At a time when Washington is divided in old ideological battles, he shows us what can be achieved when we bring people together to seek pragmatic solutions. Not only has he been a remarkable leader for New York, he’s established himself as a major voice in our national debate on issues like renewing our economy, educating our children and seeking energy independence. So, Mr. Mayor, I share your determination to bring this country together, to finally make progress for the American people. And I have to tell you that the reason I bought breakfast is because I expect payback at something more expensive. I’m no dummy. … I figured there’s some good steakhouses here in New York.

In a city of landmarks, we meet at Cooper Union, just uptown from Federal Hall, where George Washington took the oath of office as the first President of the United States. With all the history that has passed through the narrow canyons of lower Manhattan, it is worth taking a moment to reflect on the role that the market has played in the development of the American story.

The great task before our Founders that day was putting into practice the ideal that government could simultaneously serve liberty and advance the common good. For Alexander Hamilton, the young Secretary of the Treasury, that task was bound to the vigor of the American economy.

Hamilton had a strong belief in the power of the market. But he balanced that belief with the conviction that human enterprise “may be beneficially stimulated by prudent aids and encouragements on the part of the government.” Government, he believed, had an important role to play in advancing our common prosperity. So he nationalized the state Revolutionary War debts, weaving together the economies of the states and creating an American system of credit and capital markets. And he encouraged manufacturing and infrastructure, so products could be moved to market.

Hamilton met fierce opposition from Thomas Jefferson, who worried that this brand of capitalism would favor the interests of the few over the many. Jefferson preferred an agrarian economy because he believed that it would give individual landowners freedom, and that this freedom would nurture our democratic institutions. But despite their differences, there was one thing that Jefferson and Hamilton agreed on – that economic growth depended upon the talent and ingenuity of the American people; that in order to harness that talent, opportunity had to remain open to all; and that through education in particular, every American could climb the ladder of social and economic mobility, and achieve the American Dream.

In the more than two centuries since then, we have struggled to balance the same forces that confronted Hamilton and Jefferson – self-interest and community; markets and democracy; the concentration of wealth and power, and the necessity of transparency and opportunity for each and every citizen. Throughout this saga, Americans have pursued their dreams within a free market that has been the engine of America’s progress. It’s a market that has created a prosperity that is the envy of the world, and opportunity for generations of Americans. A market that has provided great rewards to the innovators and risk-takers who have made America a beacon for science, and technology, and discovery.

But the American experiment has worked in large part because we have guided the market’s invisible hand with a higher principle. Our free market was never meant to be a free license to take whatever you can get, however you can get it. That is why we have put in place rules of the road to make competition fair, and open, and honest. We have done this not to stifle – but rather to advance prosperity and liberty. As I said at NASDAQ last September: the core of our economic success is the fundamental truth that each American does better when all Americans do better; that the well being of American business, its capital markets, and the American people are aligned.

I think all of us here today would acknowledge that we’ve lost that sense of shared prosperity.

This loss has not happened by accident. It’s because of decisions made in boardrooms, on trading floors and in Washington. Under Republican and Democratic Administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices. We let the special interests put their thumbs on the economic scales. The result has been a distorted market that creates bubbles instead of steady, sustainable growth; a market that favors Wall Street over Main Street, but ends up hurting both.

Nor is this trend new. The concentrations of economic power – and the failures of our political system to protect the American economy from its worst excesses – have been a staple of our past, most famously in the 1920s, when with success we ended up plunging the country into the Great Depression. That is when government stepped in to create a series of regulatory structures – from the FDIC to the Glass-Steagall Act – to serve as a corrective to protect the American people and American business.

Ironically, it was in reaction to the high taxes and some of the outmoded structures of the New Deal that both individuals and institutions began pushing for changes to this regulatory structure. But instead of sensible reform that rewarded success and freed the creative forces of the market, too often we’ve excused and even embraced an ethic of greed, corner cutting and inside dealing that has always threatened the long-term stability of our economic system. Too often, we’ve lost that common stake in each other’s prosperity.

Let me be clear: the American economy does not stand still, and neither should the rules that govern it. The evolution of industries often warrants regulatory reform – to foster competition, lower prices, or replace outdated oversight structures. Old institutions cannot adequately oversee new practices. Old rules may not fit the roads where our economy is leading. There were good arguments for changing the rules of the road in the 1990s. Our economy was undergoing a fundamental shift, carried along by the swift currents of technological change and globalization. For the sake of our common prosperity, we needed to adapt to keep markets competitive and fair.

Unfortunately, instead of establishing a 21st century regulatory framework, we simply dismantled the old one – aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight. In doing so, we encouraged a winner take all, anything goes environment that helped foster devastating dislocations in our economy.

Deregulation of the telecommunications sector, for example, fostered competition but also contributed to massive over-investment. Partial deregulation of the electricity sector enabled market manipulation. Companies like Enron and WorldCom took advantage of the new regulatory environment to push the envelope, pump up earnings, disguise losses and otherwise engage in accounting fraud to make their profits look better – a practice that led investors to question the balance sheet of all companies, and severely damaged public trust in capital markets. This was not the invisible hand at work. Instead, it was the hand of industry lobbyists tilting the playing field in Washington, an accounting industry that had developed powerful conflicts of interest, and a financial sector that fueled over-investment.

A decade later, we have deregulated the financial services sector, and we face another crisis. A regulatory structure set up for banks in the 1930s needed to change because the nature of business has changed. But by the time the Glass-Steagall Act was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework.

Since then, we have overseen 21st century innovation – including the aggressive introduction of new and complex financial instruments like hedge funds and non-bank financial companies – with outdated 20th century regulatory tools. New conflicts of interest recalled the worst excesses of the past – like the outrageous news that we learned just yesterday of KPMG allowing a lender to report profits instead of losses, so that both parties could make a quick buck. Not surprisingly, the regulatory environment failed to keep pace. When subprime mortgage lending took a reckless and unsustainable turn, a patchwork of regulators were unable or unwilling to protect the American people.

The policies of the Bush Administration threw the economy further out of balance. Tax cuts without end for the wealthiest Americans. A trillion dollar war in Iraq that didn’t need to be fought, paid for with deficit spending and borrowing from foreign creditors like China. A complete disdain for pay-as-you-go budgeting – coupled with a generally scornful attitude towards oversight and enforcement – allowed far too many to put short-term gain ahead of long term consequences. The American economy was bound to suffer a painful correction, and policymakers found themselves with fewer resources to deal with the consequences.

Today, those consequences are clear. I see them in every corner of our great country, as families face foreclosure and rising costs. I seem them in towns across America, where a credit crisis threatens the ability of students to get loans, and states can’t finance infrastructure projects. I see them here in Manhattan, where one of our biggest investment banks had to be bailed out, and the Fed opened its discount window to a host of new institutions with unprecedented implications we have yet to appreciate. When all is said and done, losses will be in the many hundreds of billions. What was bad for Main Street was bad for Wall Street. Pain trickled up.

That is why the principle that I spoke about at NASDAQ is even more urgently true today: in our 21st century economy, there is no dividing line between Main Street and Wall Street. The decisions made in New York’s high-rises have consequences for Americans across the country. And whether those Americans can make their house payments; whether they keep their jobs; or spend confidently without falling into debt – that has consequences for the entire market. The future cannot be shaped by the best-connected lobbyists with the best record of raising money for campaigns. This thinking is wrong for the financial sector and it’s wrong for our country.

I do not believe that government should stand in the way of innovation, or turn back the clock to an older era of regulation. But I do believe that government has a role to play in advancing our common prosperity: by providing stable macroeconomic and financial conditions for sustained growth; by demanding transparency; and by ensuring fair competition in the marketplace.

Our history should give us confidence that we don’t have to choose between an oppressive government-run economy and a chaotic and unforgiving capitalism. It tells us we can emerge from great economic upheavals stronger, not weaker. But we can do so only if we restore confidence in our markets. Only if we rebuild trust between investors and lenders. And only if we renew that common interest between Wall Street and Main Street that is the key to our success.

Now, as most experts agree, our economy is in a recession. To renew our economy – and to ensure that we are not doomed to repeat a cycle of bubble and bust again and again – we need to address not only the immediate crisis in the housing market; we also need to create a 21st century regulatory framework, and pursue a bold opportunity agenda for the American people.

Most urgently, we must confront the housing crisis.

After months of inaction, the President spoke here in New York and warned against doing too much. His main proposal – extending tax cuts for the wealthiest Americans – is completely divorced from the reality that people are facing around the country. John McCain recently announced his own plan, and it amounts to little more than watching this crisis happen. While this is consistent with Senator McCain’s determination to run for George Bush’s third term, it won’t help families who are suffering, and it won’t help lift our economy out of recession.

Over two million households are at risk of foreclosure and millions more have seen their home values plunge. Many Americans are walking away from their homes, which hurts property values for entire neighborhoods and aggravates the credit crisis. To stabilize the housing market and help bring the foreclosure crisis to an end, I have sponsored Senator Chris Dodd’s legislation creating a new FHA Housing Security Program, which will provide meaningful incentives for lenders to buy or refinance existing mortgages. This will allow Americans facing foreclosure to keep their homes at rates they can afford.

Senator McCain argues that government should do nothing to protect borrowers and lenders who’ve made bad decisions, or taken on excessive risk. On this point, I agree. But the Dodd-Frank package is not a bailout for lenders or investors who gambled recklessly, as they will take losses. It is not a windfall for borrowers, as they will have to share any capital gain. Instead, it offers a responsible and fair way to help bring an end to the foreclosure crisis. It asks both sides to sacrifice, while preventing a long-term collapse that could have enormous ramifications for the most responsible lenders and borrowers, as well as the American people as a whole. That is what Senator McCain ignores.

For homeowners who were victims of fraud, I’ve also proposed a $10 billion Foreclosure Prevention Fund that would help them sell a home that is beyond their means, or modify their loan to avoid foreclosure or bankruptcy. It’s also time to amend our bankruptcy laws, so families aren’t forced to stick to the terms of a home loan that was predatory or unfair.

To prevent fraud in the future, I’ve proposed tough new penalties on fraudulent lenders, and a Home Score system that will allow consumers to find out more about mortgage offers and whether they’ll be able to make payments. To help low- and middle-income families, I’ve proposed a 10 percent mortgage interest tax credit that will allow homeowners who don’t itemize their taxes to access incentives for home ownership. And to expand home ownership, we must do more to help communities turn abandoned properties into affordable housing.

The government can’t do this alone, nor should it. As I said last September, lenders must get ahead of the curve rather than just reacting to crisis. They should actively look at all borrowers, offer workouts, and reduce the principal on mortgages in trouble. Not only can this prevent the larger losses associated with foreclosure and resale, but it can reduce the extent of government intervention and taxpayer exposure.

Beyond dealing with the immediate housing crisis, it is time for the federal government to revamp the regulatory framework dealing with our financial markets.

Our capital markets have helped us build the strongest economy in the world. They are a source of competitive advantage for our country. But they cannot succeed without the public’s trust. The details of regulatory reform should be developed through sound analysis and public debate. But there are several core principles for reform that I will pursue as President.

First, if you can borrow from the government, you should be subject to government oversight and supervision. Secretary Paulson admitted this in his remarks yesterday. The Federal Reserve should have basic supervisory authority over any institution to which it may make credit available as a lender of last resort. When the Fed steps in, it is providing lenders an insurance policy underwritten by the American taxpayer. In return, taxpayers have every right to expect that these institutions are not taking excessive risks. The nature of regulation should depend on the degree and extent of the Fed’s exposure. But at the very least, these new regulations should include liquidity and capital requirements.

Second, there needs to be general reform of the requirements to which all regulated financial institutions are subjected. Capital requirements should be strengthened, particularly for complex financial instruments like some of the mortgage securities that led to our current crisis. We must develop and rigorously manage liquidity risk. We must investigate rating agencies and potential conflicts of interest with the people they are rating. And transparency requirements must demand full disclosure by financial institutions to shareholders and counterparties.

As we reform our regulatory system at home, we must work with international arrangements like the Basel Committee on Banking Supervision, the International Accounting Standards Board, and the Financial Stability Forum to address the same problems abroad. The goal must be ensuring that financial institutions around the world are subject to similar rules of the road – both to make the system stable, and to keep our financial institutions competitive.

Third, we need to streamline a framework of overlapping and competing regulatory agencies. Reshuffling bureaucracies should not be an end in itself. But the large, complex institutions that dominate the financial landscape do not fit into categories created decades ago. Different institutions compete in multiple markets – our regulatory system should not pretend otherwise. A streamlined system will provide better oversight, and be less costly for regulated institutions.

Fourth, we need to regulate institutions for what they do, not what they are. Over the last few years, commercial banks and thrift institutions were subject to guidelines on subprime mortgages that did not apply to mortgage brokers and companies. It makes no sense for the Fed to tighten mortgage guidelines for banks when two-thirds of subprime mortgages don’t originate from banks. This regulatory framework has failed to protect homeowners, and it is now clear that it made no sense for our financial system. When it comes to protecting the American people, it should make no difference what kind of institution they are dealing with.

Fifth, we must remain vigilant and crack down on trading activity that crosses the line to market manipulation. Reports have circulated in recent days that some traders may have intentionally spread rumors that Bear Stearns was in financial distress while making market bets against the company. The SEC should investigate and punish this kind of market manipulation, and report its conclusions to Congress.

Sixth, we need a process that identifies systemic risks to the financial system. Too often, we deal with threats to the financial system that weren’t anticipated by regulators. That’s why we should create a financial market oversight commission, which would meet regularly and provide advice to the President, Congress, and regulators on the state of our financial markets and the risks that face them. These expert views could help anticipate risks before they erupt into a crisis.

These six principles should guide the legal reforms needed to establish a 21st century regulatory system. But the change we need goes beyond laws and regulation – we need a shift in the cultures of our financial institutions and our regulatory agencies.

Financial institutions must do a better job at managing risks. There is something wrong when boards of directors or senior managers don’t understand the implications of the risks assumed by their own institutions. It’s time to realign incentives and compensation packages, so that both high level executives and employees better serve the interests of shareholders. And it’s time to confront the risks that come with excessive complexity. Even the best government regulation cannot fully substitute for internal risk management.

For supervisory agencies, oversight must keep pace with innovation. As the subprime crisis unfolded, tough questions about new and complex financial instruments were not asked. As a result, the public interest was not protected. We do American business – and the American people – no favors when we turn a blind eye to excessive leverage and dangerous risks.

Finally, the American people must be able to trust that their government is looking out for all of us – not just those who donate to political campaigns. I fought in the Senate for the most extensive ethics reform since Watergate. I have refused contributions from federal lobbyists and PACs. And I have laid out far-reaching plans that I intend to sign into law as President to bring transparency to government, and to end the revolving door between industries and the federal agencies that oversee them.

Once we deal with the immediate crisis in housing and strengthen the regulatory system governing our financial markets, our final task is to restore a sense of opportunity for all Americans.

The bedrock of our economic success is the American Dream. It’s a dream shared in big cities and small towns; across races, regions and religions – that if you work hard, you can support a family; that if you get sick, there will be health care you can afford; that you can retire with the dignity and security and respect that you have earned; that your kids can get a good education, and young people can go to college even if they’re not rich. That is our common hope across this country. That is the American Dream.

But today, for far too many Americans, this dream is slipping away. Wall Street has been gripped by increasing gloom over the last nine months. But for many American families, the economy has effectively been in recession for the past seven years. We have just come through the first sustained period of economic growth since World War II that was not accompanied by a growth in incomes for typical families. Americans are working harder for less. Costs are rising, and it’s not clear that we’ll leave a legacy of opportunity to our children and grandchildren.

That’s why, throughout this campaign, I’ve put forward a series of proposals that will foster economic growth from the bottom up, and not just from the top down. That’s why the last time I spoke on the economy here in New York, I talked about the need to put the policies of George W. Bush behind us – policies that have essentially said to the American people: “you are on your own”; because we need to pursue policies that once again recognize that we are in this together.

This starts with providing a stimulus that will reach the most vulnerable Americans, including immediate relief to areas hardest hit by the housing crisis, and a significant extension of unemployment insurance for those who are out of work. If we can extend a hand to banks on Wall Street, we can extend a hand to Americans who are struggling.

Beyond these short term measures, as President I will be committed to putting the American Dream on a firmer footing. To reward work and make retirement secure, we’ll provide an income tax cut of up to $1000 for a working family, and eliminate income taxes altogether for any retiree making less than $50,000 per year. To make health care affordable for all Americans, we’ll cut costs and provide coverage to all who need it. To put more Americans to work, we’ll create millions of new Green Jobs and invest in rebuilding our nation’s infrastructure. To extend opportunity, we’ll invest in our schools and our teachers, and make college affordable for every American. And to ensure that America stays on the cutting edge, we’ll expand broadband access, expand funding for basic scientific research, and pass comprehensive immigration reform so that we continue to attract the best and the brightest to our shores.

I know that making these changes won’t be easy. I will not pretend that this will come without cost, though I have presented ways we can achieve these changes in a fiscally responsible way. I know that we’ll have to overcome our doubts and divisions and the determined opposition of powerful special interests before we can truly advance opportunity and prosperity for all Americans.

But I would not be running for President if I didn’t think that this was a defining moment in our history. If we fail to overcome our divisions and continue to let special interest set the agenda, then America will fall behind. Short-term gains will continue to yield long-term costs. Opportunity will slip away on Main Street and prosperity will suffer here on Wall Street. But if we unite this country around a common purpose, if we act on the responsibilities that we have to each other and to our country, then we can launch a new era of opportunity and prosperity.

I know we can do this because Americans have done this before. Time and again, we’ve recognized that common stake that we have in each other’s success. That’s how people as different as Hamilton and Jefferson came together to launch the world’s greatest experiment in democracy. That’s why our economy hasn’t just been the world’s greatest wealth creator – it’s bound America together, it’s created jobs, and it’s made the dream of opportunity a reality for generations of Americans.

Now it falls to us. We have as our inheritance the greatest economy the world has ever known. We have the responsibility to continue the work that began on that spring day over two centuries ago right here in Manhattan – to renew our common purpose for a new century, and to write the next chapter in the story of America’s success. We can do this. And we can begin this work today.

1 comment March 27th, 2008

Clinton: ‘I Don’t Understand Alan Greenspan’

Asked why she would pick Alan Greenspan to head a group of financial leaders to handle the housing crisis, Clinton told the Philadelphia Daily News:

“Not only that, but the Fed didn’t act while he was there. But he has a calming influence still to this day on Wall Street — don’t ask me why because I never understand what he’s saying — but nevertheless people respond to that Delphic oracle approach. I think it would be wise to include him. And recently he’s come out and vert smartly so that we have to deal with housing and maybe we need to have some kind of buyout mechanism for mortgages. So he’s moved on his understanding and depth of the problem — but you know you could pick three others.”

One can only flashback to when John McCain said he “doesn’t really understand economics.”

Add comment March 25th, 2008

Economics 101 - Election Op-Eds

Each of the three remaining Presidential candidates addressed the economy today via their advisers. John McCain, Hillary Clinton, and Barack Obama each had a senior adviser address today’s economic concerns in op-ed pieces featured on today’s Washington Post.

To read Clinton’s adviser Gene Sperling, click here.

For Obama’s adviser Austan Goolsbee, click here.

For McCain’s advsier Douglas Holtz-Eakin, click here.

Add comment March 24th, 2008

Barack Obama’s Speech In Charleston

Barack Obama gave his 3rd major speech in 3 days, this one coming in Charleston West Virginia, at the University of Charleston. Obama addressed the economic and human life costs of the War in Iraq.

Full transcript:

The Cost of War

Thursday, March 20, 2008

Five years ago, the war in Iraq began. And on this fifth anniversary, we honor the brave men and women who are serving this nation in Iraq, Afghanistan, and around the world. We pay tribute to the sacrifices of their families back home. And a grateful nation mourns the loss of our fallen heroes.

I understand that the first serviceman killed in Iraq was a native West Virginian, Marine 1st Lieutenant Shane Childers, who died five years ago tomorrow. And so on this anniversary, my thoughts and prayers go out to Lieutenant Childers’ family, and to all who’ve lost loved ones in Iraq and Afghanistan.

The costs of war are greatest for the troops and those who love them, but we know that war has other costs as well. Yesterday, I addressed some of these other costs in a speech on the strategic consequences of the Iraq war. I spoke about how this war has diverted us from fighting al Qaeda in Afghanistan and Pakistan, and from addressing the other challenges of the 21st Century: violent extremism and nuclear weapons; climate change and poverty; genocide and disease.

And today, I want to talk about another cost of this war – the toll it has taken on our economy. Because at a time when we’re on the brink of recession – when neighborhoods have For Sale signs outside every home, and working families are struggling to keep up with rising costs – ordinary Americans are paying a price for this war.

When you’re spending over $50 to fill up your car because the price of oil is four times what it was before Iraq, you’re paying a price for this war.

When Iraq is costing each household about $100 a month, you’re paying a price for this war.

When a National Guard unit is over in Iraq and can’t help out during a hurricane in Louisiana or with floods here in West Virginia, our communities are paying a price for this war.

And the price our families and communities are paying reflects the price America is paying. The most conservative estimates say that Iraq has now cost more than half a trillion dollars, more than any other war in our history besides World War II. Some say the true cost is even higher and that by the time it’s over, this could be a $3 trillion war.

But what no one disputes is that the cost of this war is far higher than what we were told it would be. We were told this war would cost $50 to $60 billion, and that reconstruction would pay for itself out of Iraqi oil profits. We were told higher estimates were nothing but “baloney.” Like so much else about this war, we were not told the truth.

What no one disputes is that the costs of this war have been compounded by its careless and incompetent execution – from the billions that have vanished in Iraq to the billions more in no-bid contracts for reckless contractors like Halliburton.

What no one disputes is that five years into this war, soldiers up at Fort Drum are having to wait more than a month to get their first mental health screening – even though we know that incidences of PTSD skyrocket between the second, third, and fourth tours of duty. We have a sacred trust to our troops and our veterans, and we have to live up to it.

What no one disputes is that President Bush has done what no other President has ever done, and given tax cuts to the rich in a time of war. John McCain once opposed these tax cuts – he rightly called them unfair and fiscally irresponsible. But now he has done an about face and wants to make them permanent, just like he wants a permanent occupation in Iraq. No matter what the costs, no matter what the consequences, John McCain seems determined to carry out a third Bush-term.

That’s an outcome America can’t afford. Because of the Bush-McCain policies, our debt has ballooned. This is creating problems in our fragile economy. And that kind of debt also places an unfair burden on our children and grandchildren, who will have to repay it.

It also means we’re having to pay for this war with loans from China. Having China as our banker isn’t good for our economy, it isn’t good for our global leadership, and it isn’t good for our national security. History teaches us that for a nation to remain a preeminent military power, it must remain a preeminent economic power. That is why it is so important to manage the costs of war wisely.

This is a lesson that the first President Bush understood. The conduct of the Gulf War cost America less than $20 billion – what we pay in two months in Iraq today. That’s because that war was prosecuted on solid grounds, and in a responsible way, and with the support of allies, who paid most of the costs. None of this has been the case in the way George W. Bush and John McCain have waged the current Iraq war.

Now, at that debate in Texas several weeks ago, Senator Clinton attacked John McCain for supporting the policies that have led to our enormous war costs. But her point would have been more compelling had she not joined Senator McCain in making the tragically ill-considered decision to vote for the Iraq war in the first place.

The truth is, this is all part of the reason I opposed this war from the start. It’s why I said back in 2002 that it could lead to an occupation not just of undetermined length or undetermined consequences, but of undetermined costs. It’s why I’ve said this war should have never been authorized and never been waged.

Now, let me be clear: when I am President, I will spare no expense to ensure that our troops have the equipment and support they need. There is no higher obligation for a Commander-in-Chief. But we also have to understand that the more than $10 billion we’re spending each month in Iraq is money we could be investing here at home. Just think about what battles we could be fighting instead of fighting this misguided war.

Instead of fighting this war, we could be fighting the terrorists who attacked us on 9/11 and who are plotting against us in Afghanistan and Pakistan. We could be securing our homeland and stopping the world’s most dangerous weapons from falling into terrorist hands.

Instead of fighting this war, we could be fighting for the people of West Virginia. For what folks in this state have been spending on the Iraq war, we could be giving health care to nearly 450,000 of your neighbors, hiring nearly 30,000 new elementary school teachers, and making college more affordable for over 300,000 students.

We could be fighting to put the American dream within reach for every American – by giving tax breaks to working families, offering relief to struggling homeowners, reversing President Bush’s cuts to the Manufacturing Extension Partnership, and protecting Social Security today, tomorrow, and forever. That’s what we could be doing instead of fighting this war.

Instead of fighting this war, we could be fighting to make universal health care a reality in this country. We could be fighting for the young woman who works the night shift after a full day of college and still can’t afford medicine for a sister who’s ill. For what we spend in several months in Iraq, we could be providing them with the quality, affordable health care that every American deserves.

Instead of fighting this war, we could be fighting to give every American a quality education. We could be fighting for the young men and women all across this country who dream big dreams but aren’t getting the kind of education they need to reach for those dreams. For a fraction of what we’re spending each year in Iraq, we could be giving our teachers more pay and more support, rebuilding our crumbling schools, and offering a tax credit to put a college degree within reach for anyone who wants one.

Instead of fighting this war, we could be fighting to rebuild our roads and bridges. I’ve proposed a fund that would do just that and generate nearly two million new jobs – many in the construction industry that’s been hard hit by our housing crisis. And it would cost just six percent of what we spend each year in Iraq.

Instead of fighting this war, we could be freeing ourselves from the tyranny of oil, and saving this planet for our children. We could be investing in renewable sources of energy, and in clean coal technology, and creating up to 5 million new green jobs in the bargain, including new clean coal jobs. And we could be doing it all for the cost of less than a year and a half in Iraq.

These are the investments we could be making, all within the parameters of a more responsible and disciplined budget. This is the future we could be building. And that is why I will bring this war to an end when I’m President of the United States of America.

But we also know that even after this war comes to an end, the costs of this war will not. We’ll have to keep our sacred trust with our veterans and fully fund the VA. We’ll have to look after our wounded warriors – whether they’re suffering from wounds seen or unseen. That must include the signature injuries of the wars in Iraq and Afghanistan – not just PTSD, but Traumatic Brain Injury. We’ll have to give veterans the health care and disability benefits they deserve, the support they need, and the respect they’ve earned. This is an obligation I have fought to uphold on the Senate Veterans’ Affairs Committee by joining Jay Rockefeller to expand educational opportunities for our veterans. It’s an obligation I will uphold as President, and it’s an obligation that will endure long after this war is over.

And our obligation to rebuild our military will endure as well. This war has stretched our military to its limits, wearing down troops and equipment as a result of tour after tour after tour of duty. The Army has said it will need $13 billion a year just to replace and repair all the equipment that’s been broken or lost. So in the coming years we won’t just have to restore our military to its peak level of readiness, and we won’t just have to make sure our National Guard is back to being fully prepared to handle a domestic crisis, we’ll also have to ensure that our soldiers are trained and equipped to confront the new threats of the 21 century and that our military can meet any challenge around the world. And that is a responsibility I intend to meet as Commander-in-Chief.

So we know what this war has cost us – in blood and in treasure. But in the words of Robert Kennedy, “past error is no excuse for its own perpetuation.” And yet, John McCain refuses to learn from the failures of the Bush years. Instead of offering an exit strategy for Iraq, he’s offering us a 100-year occupation. Instead of offering an economic plan that works for working Americans, he’s supporting tax cuts for the wealthiest among us who don’t need them and aren’t asking for them. Senator McCain is embracing the failed policies of the past, but America is ready to embrace the future.

When I am your nominee, the American people will have a real choice in November – between change and more of the same, between giving the Bush policies another four years, or bringing them to an end. And that is the choice the American people deserve.

Somewhere in Baghdad today, a soldier is stepping into his Humvee and heading out on a patrol. That soldier knows the cost of war. He’s been bearing it for five years. It’s the cost of being kept awake at night by the whistle of falling mortars. It’s the cost of a heart that aches for a loved one back home, and a family that’s counting the days until the next R&R. It’s the cost of losing a friend, who asked for nothing but to serve his country.

How much longer are we going to ask our troops to bear the cost of this war?

How much longer are we going to ask our families and our communities to bear the cost of this war?

When are we going to stop mortgaging our children’s future for Washington’s mistake?

This election is our chance to reclaim our future – to end the fight in Iraq and take up the fight for good jobs and universal health care. To end the fight in Iraq and take up the fight for a world-class education and retirement security. To end the fight in Iraq and take up the fight for opportunity, and equality, and prosperity here at home.

Those are the battles we need to fight. That is the leadership I want to offer. And that is the future we can build together when I’m President of the United States. Thank you.

Add comment March 20th, 2008