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Obama's Wrong: Wall Street Not to Blame

By Monday, 02 February 2009 01:00 PM Current | Bio | Archive

Within days of becoming president, Barack Obama was quick to find a scapegoat for the economic crisis.

He has railed against Wall Street’s “arrogance and greed.” Drawing attention to “shameful” Wall Street bonuses of $18 billion, he described them as “the height of irresponsibility.”

I am not going to defend Wall Street excesses. It is unclear to me if these bonuses are excessive. But let’s put all of this into perspective.

America’s economy is the engine of the global economy. We represent less than 5 percent of the world’s population and a disproportionate 25 percent of the world’s GDP. We remain the reserve currency of the world.

Wall Street has played a major role in American capitalism. Its executives should be well compensated.

I am not angry at Wall Street because the current economic crisis was not caused by Wall Street. And Wall Street is not prolonging the pain.

Our economic problems have emanated from Washington and from the Federal Reserve.

If any one needs to be shamed, how about starting with Congress? Congress has offered so little oversight of Wall Street — not to mention the executive branch and the Federal Reserve.

And yes, both Republicans and Democrats have played a role in the current mess.

What is abundantly clear in just the first two weeks of the Obama administration is that the Democrats have the wrong approach in fixing our problems.

We have seen that in the massive $800 billion-plus “stimulus” program, which largely goes to directly helping the unions that backed Obama and which benefits a massive laundry list of social welfare and pork barrel spending.

A careful examination shows the stimulus is nothing more than payback to many of the special interests that supported his campaign and the Democrats in 2008.

Commentator Ben Stein estimates that almost half of the stimulus will directly benefit the private and public unions that backed Obama and the Democrats in the recent election.

Then, other hundreds of billions of dollars are spent on federal and state welfare programs. Even illegal aliens can collect checks of up to $1,000.

When I hear Obama wag his finger at bankers on Wall Street, I wonder if he really is serious about fixing our economy or simply replaying Franklin Roosevelt and the 1930s.

Unsuccessful at solving the country’s economic woes, some argue FDR’s policies actually prolonged the Depression for almost a decade and shifted the public’s focus on “evil” Wall Street.

During the ‘30s, FDR demonized corporate America in a skilful public relations effort that pitted Main Street against the wealthy elites.

Sound familiar?

Today, we need to place blame where it belongs. Where was Washington when the Fed and our regulatory agencies allowed zero percent loans to mortgage recipients who weren’t qualified?

Where were they as the financial institutions began collateralizing these loans and then leveraging them 10 to 1 or more?

Where were they when Fed Chairman Alan Greenspan slammed the monetary gas, dropping interest rates to a record low of 1 percent?

Where were they when, in 2004, the Fed reversed course and slammed the brakes on the U.S. economy, raising rates over 400 percent from 1 percent to over 5 percent in less than two years?

Housing Is the Key to Recovery

I am amazed that with trillions in spending and all the smoke about Wall Street, the Democrats in Congress and Obama in the White House are failing to do the No. 1 thing to save the economy: help the housing market.

Don’t forget what precipitated the domino effect — the housing crash, which began in 2005 (after the Fed dramatically raised rates) as ARMs readjusted astronomically for new homeowners.

This set off the liquidity crisis, the first jolts of which were felt in the U.S. economy in the summer of 2008.

Since then, Congress and the Fed have done almost nothing to save the housing market. In fact, housing prices continue to fall, inventories continue to rise, and foreclosures rates are breaking records.

Instead of aiding the housing market, Washington is bent on giving trillions in bailouts to banks, the auto industry, state and local governments and millions of suffering Americans — morphine to a dying patient.

But imagine if Congress gave tax credits now to home buyers. If it increased deductibility of mortgages for homebuyers. If it guaranteed new mortgages as long as the applicants were qualified.

If it did, it would stimulate home buying. Prices would stabilize. Inventories would fall.

Banks would begin to find that the “toxic” mortgage paper they won actually has some value. Homeowners would again be finding equity in their property and would be able to refinance expensive debt at low rates. Consumer spending would increase.

Yet almost two years into this crisis, the Obama administration and Congress refuse to take the most basic step to fix the U.S. economy.

Republican Senate Minority Leader Mitch McConnell hit the nail on the head when he said housing is the primary step to restoring the economy.

“Most economists agree that falling home values are the underlying cause of the recent downturn,” he said. “Republicans think we need to fix this problem before we do anything else.”

He’s absolutely right. McConnell wants to offer government-guaranteed mortgages at a low 4 percent to any credit-worthy borrower who wants one.

It’s a simple solution, but one that will work.

There are sensible Democrats too who know housing is key. North Dakota’s Sen. Kent Conrad is calling for a $10,000 tax credit for any primary home buyer.

Obama and his administration should stop playing the blame game and begin implementing common-sense solutions to make America work again.

That’s real change we can sign up for.

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Within days of becoming president, Barack Obama was quick to find a scapegoat for the economic crisis.He has railed against Wall Street s arrogance and greed. Drawing attention to shameful Wall Street bonuses of $18 billion, he described them as the height of...
Monday, 02 February 2009 01:00 PM
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