JIM LEHRER: Ray Suarez has the economy story.
RAY SUAREZ: The president used this morning’s news conference to take on concern over the nation’s struggling economy and the various Washington proposals to remedy it.
Mr. Bush made clear where he thought the economy wasn’t heading.
GEORGE W. BUSH, President of the United States: I don’t think we’re headed to a recession. But no question we’re in a slowdown. That’s why we acted, and acted strongly, with over $150 billion worth of pro-growth economic incentives.
RAY SUAREZ: The president took aim at several measures now in debate on Capitol Hill, including the possibility of another stimulus package.
Senate Democrats are proposing a wider bill that would increase or extend funding for unemployment benefits, food stamps, and infrastructure projects.
Two weeks ago, the president signed a $168 billion stimulus package. That plan will give more than 130 million Americans a rebate check worth between $300 and $1,200, depending on their income.
Today, the president said that bill was sufficient for now.
GEORGE W. BUSH: Why don’t we let stimulus package one, which seemed like a good idea at the time, have a chance to kick in?
RAY SUAREZ: Mr. Bush also criticized a Senate proposal that would allow bankruptcy judges to change the terms of a mortgage.
GEORGE W. BUSH: Congress needs to act to help homeowners avoid foreclosure. Unfortunately, the Senate is considering legislation that would do more to bail out lenders and speculators than to help American families keep their homes.
The Senate bill would actually prolong the time it takes for the housing market to adjust and recover, and it would lead to higher interest rates.
RAY SUAREZ: Senate Democrats fired back, saying the housing bill was important to provide assistance for homeowners in trouble. Here’s Senator Charles Schumer of New York.
SEN. CHUCK SCHUMER (D), New York: This is a carefully thought out, modest, balanced package that aims at the bull’s eye of our economic crisis, which is housing. And, Mr. President, make no mistake about it: Unless we address the housing crisis, we are not going to be able to clear up this economy.
RAY SUAREZ: The debate in Washington comes amid more bad news on the housing front this week. Prices of new homes dropped 15 percent from a year ago, and foreclosures have increased nearly 60 percent during that same period.
Meanwhile, energy and gasoline prices are also up. Crude oil has been closing above $100 a barrel all week. And the dollar is now trading at record lows against the euro.
These were some of the issues Federal Reserve Chairman Ben Bernanke addressed in two days of testimony on Capitol Hill. Today, he explained the difficulty of balancing growth while preventing inflation.
BEN BERNANKE, Federal Reserve Chairman: We are facing a situation where we have simultaneously a slowdown in the economy, stress in the financial markets, and inflation pressure coming from these commodity prices abroad. And each of those things represents a challenge.
RAY SUAREZ: Senate Democrats tried to pass a housing bill this afternoon, but were blocked by Republicans. They’re expected to try again in the next week or so.
RAY SUAREZ: We get the views from both sides of the aisle on how to respond to the economy's troubles. Senator Sherrod Brown of Ohio is a co-sponsor of the Democrats' housing bill. He serves on the Senate Banking, Housing and Urban Affairs Committee.
And Senator Johnny Isakson is a Republican from Georgia who is working on an alternative bill. He's a member of the small business community.
Gentlemen, maybe we could start with a little diagnosis.
Earlier, we heard the president say that he foresees a slowdown, Senator Isakson, but he doesn't see a recession on the way. What do you think is going on in Georgia and the rest of the country?
SEN. JOHNNY ISAKSON (R), Georgia: Well, I spent 33 years in the real estate business in Georgia, and I understand there are two shoes to drop in this issue.
The first shoe has dropped. That's been the slowdown, the tightness in the credit markets, and all that.
The second shoe is when you get the flood of adjudicated foreclosures going on the market. We had that happen in 1974 in this country. We ended up with a plethora of homes sitting on the market.
Buyers stayed out; home prices went down, as you just reported in your report; and equity lines of credit went negative. So it's very important that we address the cause of the economic slowdown and it's targeted at housing.
RAY SUAREZ: And, Senator Brown, let's hear from you. Do you agree with the president that a recession is not in the offing, but a slowdown is definitely underway?
SEN. SHERROD BROWN: Well, the president hadn't been to Ohio recently and to a whole lot of other states that not only have seen increased unemployment, they've seen, obviously, an increased number of foreclosures. We have 200 every day in Ohio.
And the whole stagnation, the flattening out of wages, where, partly because of trade policy, partly because of housing policy, partly for other reasons, we've seen an economy that middle-class workers aren't doing very well all over the country.
RAY SUAREZ: Well, you were co-sponsor of a bill that was meant to bring relief. What were the parts of that bill that -- what would they do?
SEN. SHERROD BROWN: Well, several things would matter in this bill. One is we would provide about $200 million for counseling services.
When somebody's about to lose their home, unlike 20 years ago, when Johnny was first in this business, or 30 years ago -- people knew who their lender was and could go to the local bank and try to work things out.
People don't know that now. They often don't have the expertise. The contracts are more complicated, and they need someone that will help them through this and help them maybe restructure their loan so they can stay in their homes, which is obviously the most important thing.
We also provide $4 billion in this for those communities, places like Cleveland, but small towns like Chillicothe, Ohio, too, that have these problems of abandoned homes.
If you have 200 foreclosures a day, you're going to have abandoned homes, which brings the value of other homes in the neighborhood down, pushes the value down, and those homes are more likely to be vandalized.
And cities are hurting and small towns and cities alike so that, in clearing out these homes, either fixing them up so people can stay in them or rent them or sell them and other people can live in them, or in some cases demolishing these homes so they don't become centers of drug activity and other things.
There's also provisions for bankruptcy and some other issues that clearly will help people most importantly stay in their homes and try to rework their mortgages out so they can stay.
Providing incentives to buy homes
RAY SUAREZ: Senator Isakson, were you part of the effort to block that bill? And what's in your alternative?
SEN. JOHNNY ISAKSON: Well, first of all, Sherrod did a very good job of describing what's going to be the result of no action, in terms of vacant houses all over the place, values going down, vandalism.
The problem is the bill that we had the vote on today, the only provision for the consumer was a provision that motivated them to take bankruptcy and allowed a judge to renegotiate the terms of a collateralized mortgage investment, which would be a disaster. It would raise interest rates; it would take capital out of the mortgage market.
What we're proposing is a $5,000-a-year tax credit for three years to any family that buys a foreclosed house, a house pending foreclosure, or a standing new house built prior to September of last year. As long as they buy it, own it, and occupy it, for the first three years they get a $5,000-a-year credit.
We did it in 1975 when we had a similar crisis. Then it was a $2,000 credit. The housing market came back. Values stabilized. Equity lines of credit went positive again.
We need to do the same thing. We need to empower the private sector to help us come out of this housing crisis.
RAY SUAREZ: So just to be sure -- go ahead, Senator Brown.
SEN. SHERROD BROWN: Johnny's got a lot of experience in this, 30 years in the housing business. His proposal is not a bad idea. But this is -- what we want to really do is help those two million people that are estimated the next year to have their homes foreclosed on unless we do something.
And the something is people aren't going to just want to take bankruptcy to get out -- they don't want to leave their homes voluntarily. They want to stay in their homes.
And we now, under the law, we allow bankruptcy judges to modify for vacation homes and boats and small businesses, but not to modify these loans when it comes to people living in their homes.
They're not going to abandon their homes. We want to find ways to keep them in these homes.
And I like his idea about helping people buy homes. But the two million people that are going to face foreclosure in the next year, hundreds of thousands of them, in Dayton, and Youngstown, and Toledo, and small towns like Lima and Mansfield, we've got to do something.
RAY SUAREZ: Senator Isakson, why don't you take up that idea? Senator Brown is putting his emphasis on keeping people who are already in housing in the house they bought, while your alternative seems to be more about providing an incentive for people to buy houses after the families have been foreclosed on and moved on.
SEN. JOHNNY ISAKSON: Well, first of all, you have a lot who have been foreclosed on. Second, you have some that are pending. Sherrod's ideas on counseling, many of the provisions in the bill are excellent.
My point on the bankruptcy is this: If the only offer you offer to the consumer that's in trouble is to file bankruptcy and allow a judge to come in and renegotiate the terms of a collateralized mortgage instrument that was sold in the marketplace as one thing and ends up being something else, you're going to raise interest rates on everybody else, you're going to take capital out of the mortgage market, and you're going to actually compound the problem.
Getting bipartisan support
RAY SUAREZ: Senator Brown, how about that? Don't you then put the taxpayer in the position of protecting people from bad economic choices and risky investments that they made?
SEN. SHERROD BROWN: People don't want to go into bankruptcy. It's not like all these two million people are going to rush down to the courthouse and file for bankruptcy. They're going to try to fight back. That's why it's important we do these counseling programs.
And, you know, there are too many people in this country right now that are right on the edge of -- they're already behind in their payments. They're not getting the kind of help voluntarily from the president's plan. That's only 1 percent or 2 percent or 3 percent of the people.
And we've got to find ways that -- short of going to bankruptcy court, because most people don't want to do that, of moving forward. The counseling will matter. That's one step in this, and I'm glad that Senator Isakson agrees with that. But clearly we need to do a little better than that.
RAY SUAREZ: From economics to politics, Senator Isakson, are you hearing from members on your side of the aisle who have states and cities in their states that are foreclosure hotspots that may be feeling the heat themselves and are taking a listen to the Democratic proposals in this regard?
SEN. JOHNNY ISAKSON: Well, that's really two questions. The first question is, when I introduced the legislation I described on the tax credit, we're now up to, I think, 23 co-sponsors, including a Democrat co-sponsor, all coming to me saying, "This really does make a difference in my state. We're having that problem."
The difference I had today on the vote on the Democratic bill is the majority leader was going to use -- we'll use the term "fill up the tree," which means preclude any amendments. This is a bill that needs to be debated.
And there are good ideas on the Democratic side. I think there are good ideas on our side. I think we ought to be able to debate all of them. And the minute the leader will let us do that, these measures should be on the floor and the American people should see us in action.
Other signs of economic downturn
RAY SUAREZ: Senator Brown, what about the idea of waiting? Today, the president suggested that stimulus one -- as he called it, which was just signed a couple of weeks ago -- has to be given a chance to work before Capitol Hill puts any more bills into play.
SEN. SHERROD BROWN: Well, first of all, while I voted for the stimulus -- and there is a lot I like in it, it put money in the pockets of middle-class families -- those checks won't go out until April or May.
We didn't, because of the president's opposition, extend unemployment benefits. We have the mechanism to put that money out right away, and it would have gone into people's pockets that are living on the edge because they've lost their jobs, and that would have been the kind of stimulus.
We didn't do what we should have done with food banks and food stamps money directly into the communities and helping those people who are really the victims of the recession.
So if the president wants to wait until May or June or July or August, that's sort of been the story all along. A year ago in the Banking Committee -- I mean, Johnny's not on the committee, but knows this -- we began then to try to push on some of these foreclosure issues.
And the secretary of the treasury and the Federal Reserve didn't and the president didn't really want to move then. They said, "This will play itself out." Well, once it spread from Main Street to Wall Street, the president got more interested.
But these are deep-seeded problems. And this kind of "Let's hope it goes away" that the president has is not fair to so many middle-class Americans.
RAY SUAREZ: And, Senator Isakson, you've got a weak dollar, expensive oil, a dipping GDP, and various other bad indicators. Can you really wait to see if that first bill works before you do something else?
SEN. JOHNNY ISAKSON: I basically agree with what Sherrod just said. The stimulus that we passed was temporary and it was strategic, but it addressed the symptom of the problem, not the cause of the problem.
The housing market, the failures of the mortgage market, the subprime disaster at the end of last year has caused the problem. We're now seeing the foreclosures.
And soon, in the second quarter, we're going to see the vacancies going on the market. And you're going to see an acceleration of values going down.
So I think acting now is wise, especially if we empower the people out there in the public to get in and help be a part of this, rather than just having a government solution.
RAY SUAREZ: Well, Senator Brown, your bill was blocked this afternoon. Do you get another bite at the apple? When? And how will the outcome be any different?
SEN. SHERROD BROWN: Well, I'm hoping we can get a bite at the apple next week. This is too important to just hope it goes away.
SEN. JOHNNY ISAKSON: I think we will. I think we'll reach an agreement on amendments. And once we do that, the debate will go to the floor.
RAY SUAREZ: Senator Johnny Isakson of Georgia, Senator Sherrod Brown of Ohio, gentlemen, thank you.
SEN. SHERROD BROWN: Thank you.
SEN. JOHNNY ISAKSON: Thank you.