TOPICS > Politics

Candidates Keep Tight Focus on the Economy

March 27, 2008 at 6:10 PM EST
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All three presidential hopefuls weighed in on current U.S. economic turmoil this week, outlining their solutions for issues ranging from soaring foreclosure rates to government oversight of investment banks.
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JUDY WOODRUFF: The weak economy and what to do about it has been the focus of all three presidential candidates on the campaign trail this week.

Hillary Clinton addressed the issue on Monday at the University of Pennsylvania in Philadelphia.

SEN. HILLARY CLINTON (D), New York: We need a president who is ready on day one to be commander-in-chief of our economy. If you give me the chance, I will be that president.

I will start by facing our economic situation as it is, not as we wish it would be. That means acknowledging that our economic crisis is, at its core, a housing crisis, a crisis caused in part by unscrupulous mortgage lenders and brokers and unregulated transactions in mortgage-backed securities, in part by speculators who were buying multiple houses to sell for a quick buck and other buyers who didn’t act responsibly, and in part by a president and administration who failed to anticipate and continue to downplay the problems we face.

Today, I’m announcing my four-point plan to protect American homeowners, a plan to help our families keep their homes, and help communities hard hit by the housing crisis.

My plan starts with an aggressive new effort to help millions of at-risk families restructure their mortgages and stay in their homes. Of the tens of millions of Americans who have lost value in their homes, 8.8 million are struggling with these mortgages underwater; that is more than 10 percent of all homeowners, the highest percentage since the Great Depression. If home prices fall another 15 percent, one-third of all homeowners will find themselves in the same boat.

The time for action is now, not a month from now or a year from now, but now. And the reality is that many of our families need more than just basic refinancing. That’s why I support new legislation proposed by my colleagues, Representative Barney Frank and Senator Chris Dodd, that would expand the government’s capacity to stand behind mortgages that are reworked on affordable terms.

In order to determine whether the approach outlined by Representative Frank and Senator Dodd is sufficient or whether we need the government to step in as a purchaser, I’m calling on President Bush to appoint an emergency working group on foreclosures. That’s the second part of my plan.

We simply cannot wait until Congress passes legislation to find the best way to help millions of families. That’s why I’m proposing this emergency working group on foreclosures.

It could be led by a distinguished, non-partisan group of economic leaders, like Alan Greenspan, Robert Rubin, Paul Volcker. It’s the kind of proactive step that would help re-establish confidence in our economy, by showing that the president and the administration is taking our economic crisis seriously.

The third part of my plan is a new housing stimulus package to provide $30 billion directly to states and localities, like Pennsylvania and Philadelphia, hard hit by this crisis.

Right now, concentrated clusters of foreclosures are devastating some communities. A recent study of 10 states by the U.S. Conference of Mayors found that the foreclosure crisis will lead to $6.6 billion in lost tax revenues in just those 10 states alone.

That’s why I’m calling for the creation of a one-time emergency $30 billion fund that would go directly to cities and states to address the housing crisis.

This money could be used to purchase foreclosed or distressed properties, which cities and states could then resell to low-income families or convert into affordable rental housing. It could be used to help neighborhoods with high foreclosure rates avoid increased crime and blight by investing in everything from police and fire support to graffiti removal and better lighting.

The fourth and final part of my plan involves passing new legislation to clarify legal liability for mortgage companies that act to help more borrowers stay in their homes.

Right now, many mortgage companies are reluctant to help families restructure their mortgages because they’re afraid of being sued by the investment banks, the private equity firms, and others who actually own the mortgage papers.

That’s why I will be proposing legislation when Congress returns to provide mortgage companies with protection against the threat of such lawsuits.

I know this kind of policy isn’t particularly glamorous, and it probably won’t make headlines, but it will make a critical difference in helping families save their homes and getting our economy back on track.

Directed help to homeowners

JUDY WOODRUFF: John McCain followed Clinton with a speech Tuesday in Santa Ana, Calif., before a group of Latino small business leaders.

SEN. JOHN MCCAIN (R), Arizona: Home ownership is part of the American dream, as we all know. And we want as many Americans as possible to be able to afford their own home.

But in the process of a huge and largely positive upturn in home construction and ownership, a housing bubble was created. A bubble occurs when prices are driven up too quickly; speculators move into markets; and these players begin to suspend the normal rules of risk and assume that prices can only move up, but never down.

We've seen this kind of bubble before. In the late 1990s, we had the technology bubble, when money poured into technology stocks and people assumed that those stock values would rise indefinitely.

Between 2001 and 2006, housing prices rose by nearly 15 percent every single year. The normal market forces of people buying and selling their homes were overwhelmed by rampant speculation. Our system of market checks and balances didn't correct this until the bubble burst.

A sustained period of rising home prices made many home lenders complacent, giving them a false sense of security and causing them to lower their lending standards. What started as a problem in subprime loans has now convulsed the entire financial system.

My friends, let's start with some straight talk. I will not play election-year politics with the housing crisis. I will evaluate everything in terms of whether it might be harmful or helpful to our effort to deal with the crisis we face now.

I've always been committed to the principle that it's not the duty of government to bail out and reward those who act irresponsibly, whether they're big banks or small borrowers. Government assistance to the banking system should be based on solely preventing systemic risk that would endanger the entire financial system and the economy.

In our effort to help deserving homeowners, no assistance should be given to speculators. Any assistance for borrowers should be focused solely on homeowners, not people who bought houses for speculative purposes to rent or as second homes. Any assistance must be temporary and must not reward people who were irresponsible at the expense of those who weren't.

I will consider any and all proposals based on their cost and benefits. In this crisis, as in all I may face in the future, I will not allow dogma to override common sense.

Our financial market approach should include encouraging increased capital and financial institutions by removing regulatory, accounting, and tax impediments to raising capital. I am prepared to examine any new proposals and evaluate them based on these principles.

But I think we need to do two things right away: First, it's time to convene a meeting of the nation's accounting professionals to discuss the current mark-to-market accounting systems.

We're witnessing an unprecedented situation, as banks and investors try to determine the appropriate value of the assets they're holding, and there's widespread concern that this approach is exacerbating the credit crunch.

We should also convene a meeting of the nation's top mortgage lenders -- the top mortgage lenders in this country, working together. They should pledge to provide maximum support and help to their cash-strapped, but credit-worthy customers. They should pledge to do everything possible to keep families in their homes and businesses growing.

You may recall that, immediately after Sept. 11, 2001, General Motors stepped in to provide 0 percent financing as part of keeping the economy growing. We need a similar response by the mortgage lenders.

They've been asking the government to help them out. I'm now calling upon them to help their customers and their nation. It's time to help American families.

Government regulation

JUDY WOODRUFF: Today, Barack Obama was in New York, where Mayor Michael Bloomberg introduced him for his speech on the economy.

SEN. BARACK OBAMA (D), Illinois: 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 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 we need to pursue a bold opportunity agenda for the American people.

Most urgently, we have to confront the housing crisis. Over 2 million households are at risk of foreclosure. 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 to help bring the foreclosure crisis to an end, I've 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 that they can afford.

Now, Senator McCain argues that government should do nothing to protect borrowers and lenders who've made bad decisions or taken on excessive risk. And on this point, I agree.

But the Dodd-Frank package is not a bailout for lenders or investors who gambled recklessly. They will take their losses. It's 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's 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.

But 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 the 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, and so I won't try to cross every t and dot every i in this speech. But there are several core principles for reform that I intend to 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.

We need policies that once again recognize that we are in this together and we need the most powerful, the wealthiest among us -- those who are in attendance here today -- we need you to get behind that agenda.

It's an agenda that 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 when they get into trouble, we can extend a hand to Americans who are struggling often through no fault of their own.

JUDY WOODRUFF: The candidates are certainly to continue to emphasize the economy on the stump, as voters grow increasingly concerned about their financial well-being.

And you can read the full transcripts of the candidates' speeches on the economy on our Web site. That's at PBS.org.