By Brad Risen
There are few fundamentals in economics that matter more to the U.S. economy. When the largest sector of the economy is severely beaten and plundered by its business hierarchy the rest of the country suffers. The largest sector of the national economy is real estate from a dollar point of view, and the whole economy is suffering as a result of the troubled housing market.
That may be why most nations do not offer the type of mortgages America’s banks have backed by nationalized Fannie Mae and Freddie Mac. Many of the largest mortgage companies and banks are fighting to survive suffering from falling stock prices and major losses, their share-holders nearly wiped out.
The way the U.S. government works is troubling. Congress has historically been slow to understand and react to crises. Why Congress would give out money without strings attached is beyond imagination. Congress has clearly blown it with $350-billion that for some reasons can’t even be explained in its first half of the TARP. It’s enough that America has been defrauded. The purse strings need to be tightened this time so as to not waste more of our hard earned cash!
There are far too many similarities between the failures made during the Roosevelt administration’s efforts in the Great Depression, and the Bush administration’s failures to handle the economic crisis. President Obama is in for a hard run. Obama provides a message of hope for America. His passion for the United States should be echoed by more members of Congress.
It’s time for Congress to work together and get America out of this mess. Developing jobs and putting people back to work is a good start along with hand outs. But it will take much more than that to get the country straightened out.
Nearly 11 years ago in April of 1998 Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin and Securities and Exchange Commission Chairman Arthur Levitt Jr. rejected warnings from Brook Born, then the head of the Commodity Futures Trading Commission related to security trading. The derivatives she urged should be regulated would later blow up the nation’s financial system, triggering the financial crisis.
The response from the three power brokers was blistering. It was also backed by Lawrence Summers before Congress. All were afraid of excessively controlling financial markets. Summers is now Obama’s chief economic advisor. The new administration brings promises of change and hope in the midst of the worst economy since the Great Depression. A nation without proper regulatory oversight of its financial markets is a nation that will suffer from chaos. We’re hopeful that Summers now sees the errors of his ways and urges major assistance for those in foreclosure. If not, the nation won’t be worried about developing more jobs. We’ll be worried about how to control the violence in our streets.
Wall Street is the snake pit of all snake pits and is tied strongly to Washington. The elaborate business models that showed mortgage default rates would remain low given the newly developed creative mortgages worried even the youngest and least experienced of economists. The models proved to be a sham.
The crisis is now left up to Obama and Congress to re-build and restore faith in the financial system, for without it we will be a country wallowing in our own failures. Blame doesn’t get us any where. Solutions do. Save the housing market by stopping foreclosures, including investors and you’ll see an improvement in the overall economy.
Brad Risen is an Economist who writes for Housing Predictor.