Come to the candidates cold! Three economic visions

Suppose you came to the candidates cold and had to judge them solely on the basis of their speeches in response to the housing crisis?

You'd be judging Clinton and Obama at their best. Both gave great speeches last week. Both set detailed policy prescriptions in broad -- though markedly different - conceptual frameworks. Both were able to document that they'd seen the problem early and had called a year ago for actions they're still calling for now. Both argued forcibly that distressed homeowners are as worthy of targeted aid as the Wall Street banks that have already been the beneficiaries of -- admittedly necessary -- Fed largesse. (Here's Obama's speech; here's Clinton's.)

McCain in contrast was at his worst. He gave the impression that the crisis had just been brought to his attention. He treated Wall Street with kid gloves and distressed homeowners with contempt. Schooled doubtless by Phil "Dereg" Gramm, he proposed less regulation for banks and no aid for homeowners. He managed to make Bush look like a compassionate conservative. He bid fair to concede the election on the issue likely to be foremost in voters' minds, barring true catastrophe.

While Obama and Clinton proposed similar measures to prevent and deal with foreclosures, their speeches differed considerably in emphasis and concept. The differences dovetail with those of their core overall pitches to voters. Obama, characteristically, sought historical context, arguing that the current crisis was caused not only by bad policies but by a corrupt policymaking process - executed during the Clinton Administration. His proposals therefore focused as much on regulatory reform as on aid to homeowners - with the whole package implicitly pinned on breaking the grip of lobbyists. More broadly still, he set the struggle to shore up homeowners and rein in financial institutions in the context of a 200-year struggle to keep the concentration of wealth in check without choking off opportunity.

Hillary provided more detailed description and justification for her proposals to aid homeowners than Obama did. She had room to do so, because she barely touched on regulating the financial industry or on how we got into this mess (a blind spot that perhaps explains her tone-deaf eagerness to put Alan Greenspan on a blue ribbon commission to rescue homeowners). Her speech was no mere laundry list, but her conceptual frame was how Wall Street's troubles trickle down to Main Street (in marked contrast to Obama's arresting formulation: pain trickled up). She laid down a causal chain from tanking securities to dried up credit to falling home values to falling tax revenues. Describing the family home rather movingly as the foundation not only of wealth but of security. and she identified the core problem as a crisis in confidence. That's Rooseveltian - nothing to fear but fear itself. And the crisis in confidence was laid at the doorstep of "brain-dead" Bush Administration policies. Of course, it takes a Clinton to roll back those policies and get the government working for working people.

The speeches reflect how Obama and Clinton's differing political interests mesh with differences in character and outlook and personal history. Since his days as an organizer, Obama has been about systemic change. He aims to be a transformational President. He wants to be more like Reagan than Bill Clinton, to "change the trajectory of American politics" -- which in his view entails changing the political process by reducing the influence of monied interests. He takes a long view of American history, viewing it, as in this speech, as an endless struggle for balance between opportunity and fairness. He views the current moment as one in which the pendulum has swung to a dangerous degree toward concentration of wealth, which is both reflected and furthered by the power of lobbyists and campaign finance. He bids openly to move the country's political center to the left by asking for a broad mandate, the 'working majority' that, as he first said openly in January, Bill Clinton failed to get.

In Obama's narrative, Bill Clinton fought a good rearguard fight against Republican redistribution toward the wealthy. But he did so in large part by playing ball with vested interests -- as in his signing of the Gramm-Leach-Blilely bill dismantling Depression-era restrictions on financial industry activity. In this speech, Obama identified that "fundamentally flawed" deregulation as the root cause of our current financial crisis. And his pain trickled up argument to a Wall Street audience was that those with wealth and power saw off the branch they're sitting on when they "put their thumbs on the economic scales" by undermining effective regulation and enabling exploitive practices. "The result," Obama said, "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."

Hillary's shorter historical purview is shaped not only by political necessity but by the experience that shaped that necessity. Her fundamental economic message is 'back to the nineties.' That means some income redistribution downward and some risk shift back to the community. It means fighting vested industry interests head-on at times, but not attempting to change the way they influence policy. She aims to get the financial industry on board to help homeowners -- in their own interest -- but not to change the rules by which they operate.

It's no accident that Hillary continues to put Alan Greenspan forward as candidate number 1 for her Emergency Working Group on Foreclosures. In his autobiography, Greenspan identifies Bill Clinton as the smartest President he worked with. He portrays Clinton as an excellent student who worked closely with him to balance the budget and build confidence in the bond market (hence, perhaps, Hillary's emphasis on confidence as "the true currency" of the American economy). When she looks at Greenspan, Hillary apparently sees primarily her husband's partner in producing prosperity. And that certainly is a major part of Greenspan's legacy. But what about the Fed Chairman who ignored urgings to use the Fed's power to rein in abusive lending practices? Nary a word from Hillary on that front.

Hillary might indeed do well getting into the trenches with the wise men of Feds past to craft the most efficient workout possible for the nation's distressed housing portfolio. But what about restructuring the financial industry itself? Henry Paulson has laid down the gauntlet, introducing a regulatory reform plan that embodies the industry's fondest wishes for a lighter regulatory touch. But Paulson has also made clear the magnitude of the task facing the next President, emphasizing that meaningful financial regulatory reform is generally a 2-8 year process. Obama has mapped out the lines tying political reform to regulatory reform to the larger national enterprise of reversing the tiding of rising income inequality and restoring momentum toward increasing opportunity for all Americans: "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."

Is it prudent to believe that Obama might make meaningful progress on this 'transformational' agenda? If it strikes you as a pipe dream, vote for Hillary.

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McCain to Homewners: Drop Dead

In a speech on the housing crisis delivered today to the Orange County Hispanic Small Business Roundtable, John McCain has proven once again that he knows little and cares less about "economics"-- particularly the impact of market forces on ordinary people. It is a horrendous speech -- ignorant, patronizing, devoid of serious solutions.

McCain's proposed measures boil down to meetings of bankers and accountants, unenforced pledges by bankers to be nice -- and, unbelievably, more tax cuts and less regulation for banks. His tone projects belated awareness and begrudged concern. And his grammar betrays reflexive sympathy with the most powerful actors in the farce.

First, the speech approaches the current crisis from a "while I was sleeping" stance. "While I was traveling overseas," McCain informs his audience, "our financial markets experienced another round of upheaval." True enough, but where's he been in the eight months of upheaval prior to his recent trip? Throughout, he speaks about solutions in the future tense, as if he's already President, someone has just brought him news of a new-breaking crisis, and he's prepared to take suggestions. "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 will consider any and all proposals based on their cost and benefits....I am prepared to examine new proposals and evaluate them on these principals." Fired up, ready to go! Ready on Day 1...

Second, grammar betrays McCain's sympathies. By their verb constructs shall ye know them. In his grade-school exposition of how the crisis brewed, active verb constructions damn the follies of mortgage lenders (as they should) and borrowers (as they should in many cases):

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. They stopped asking basic questions of their borrowers like "can you afford this home? Can you put a reasonable amount of money down?" Lenders ended up violating the basic rule of banking: don't lend people money who can't pay it back. Some Americans bought homes they couldn't afford, betting that rising prices would make it easier to refinance later at more affordable rates. There are 80 million family homes in America and those homeowners are now facing the reality that the bubble has burst and prices go down as well as up.

But when it comes to explaining why lenders went crazy -- that is, why they had no financial incentive to worry about whether loans they originated could be repaid-- suddenly we're in the passive construction, anonymous agent, forces-larger-than-all-of-us zone. When the verbs aren't passive, the subjects are inanimate objects - bets, instruments -- or unspecified 'people':

The other part of what happened was an explosion of complex financial instruments that weren't particularly well understood by even the most sophisticated banks, lenders and hedge funds. To make matters worse, these instruments -- which basically bundled together mortgages and sold them to others to spread risk throughout our capital markets -- were mostly off-balance sheets, and hidden from scrutiny. In other words, the housing bubble was made worse by a series of complex, inter-connected financial bets that were not transparent or fully understood. That means they weren't always managed wisely because people couldn't properly quantify the risk or the value of these bets. And because these instruments were bundled and sold and resold, it became harder and harder to find and connect up a real lender with a real borrower. Capital markets work best when there is both accountability and transparency. In the case of our current crisis, both were lacking (my emphasis).

Then there's breathtaking direct contempt for homeowners who have got into trouble:

Of those 80 million homeowners, only 55 million have a mortgage at all, and 51 million are doing what is necessary -- working a second job, skipping a vacation, and managing their budgets -- to make their payments on time. That leaves us with a puzzling situation: how could 4 million mortgages cause this much trouble for us all?

Five percent of homeowners, causing all that trouble for the virtuous 95% If only they could have been left to default without riling Wall Street...

Finally, there are the policy prescriptions. Less regulation for financial institutions:

In financial institutions, there is no substitute for adequate capital to serve as a buffer against losses. Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.

More tax cuts:

Even as financial troubles weigh upon it other parts of the economy hold up or even continue to grow. I have spoken at length in other settings about the need to keep taxes low on our families, entrepreneurs, and small businesses; to make the tax code simpler and fair by eliminating the Alternative Minimum Tax that the middle class was never intended to pay; to improve the ability of our companies to compete by reducing our corporate tax rate, which today are the second highest rates in the world; to provide investment incentives...

The kitchen sink:

...to control rising health care costs that threaten the budgets of our businesses and families; to improve education and training programs; and to ensure our ability to sell to the 95 percent of the world's customers that lie outside U.S. borders.

Meetings, meetings, meetings:

But I think we need to do two things right away. First, it is time to convene a meeting of the nation's accounting professionals to discuss the current mark to market accounting systems... We should also convene a meeting of the nation's top mortgage lenders.

And voluntary, unenforced pledges.

Working together, they [The mortgage lenders, called to said meeting] 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. Recall that immediately after September 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 out. It's time to help American families.

Well thanks for calling on them, John. That'll show them! That'll take care of this mess.

Clinton and Obama ought to be able to make mincemeat of these inadequate, irrelevant, unconsidered proposals. That is, if they can spare a few moments from eviscerating each other.

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