Before today, I wasn't really too worried about either candidate. I knew that complaints about Obama's popularity weren't sustainable, and that the whole Hillary-hating enterprise that has infected a certain subset of American society is just too intense to be believable.
It was, however, the following statement by Hillary Clinton during the last debate with Barack Obama:
I think it’s imperative that we approach this mortgage crisis with the seriousness that it is presenting. There are 95,000 homes in foreclosure in California right now. I want a moratorium on foreclosures for 90 days so we can try to work out keeping people in their homes instead of having them lose their homes, and I want to freeze interest rates for five years.It's this sort of statement - a populist solution that has little serious economic thinking behind it - that makes me worried.
I remember back in the late 1990s here in Australia when Pauline Hanson was running around getting votes and attention for her far-out brand of conservative populism. Apart from the blatant racism of her policies, it was her economics that ended any respect she had amongst people in the know. She went on about a strange new tax system that no one understood and proposed things like community banks lending out money to people in rural areas at a fixed rate of 1% interest. But that wasn't the worst bit. No. One of her lackeys - I think it was David Ettridge - declared that it was official One Nation policy to prevent overseas companies and individuals from investing directly in Australian businesses. When a reporter mentioned that overseas investment was a significant form of economic growth for Australia and wouldn't this policy basically ruin the economy, Ettridge responded by saying that the government could just "print the money" to use rather than getting it from overseas. At that point pretty much every serious voter with knowledge of basic economics said "these guys are not fit to rule".
And that is how I feel now about Clinton regarding this statement.
This idea - freezing interest rates and stopping foreclosures - is certainly a populist idea. However you can't just bang your fist onto the desk and say "no more foreclosures!" and "interest rates will stay where they are" (and by interest rates she probably means the interest rates on current mortgages, not the interest rates set by the Federal Reserve). You might as well argue for price controls or reducing the budget deficit simply by getting a big pen and crossing it out on a bit of paper.
If such policies were enacted they would be disastrous, and create more problems that they solve... if they solved anything in the first place.
Of course, with highly trained and competent advisors at her beck and call, this sort of policy would be nipped in the bud straight away if she managed to become president. So either Clinton knew this would happen and said it anyway (which would make her a liar) or she actually did think it would work and did not realise that her advisors would change her mind (which essentially makes her a fool).
Some basic understanding of economics needs to be essential for any politician - but especially those who aim for a higher office like President of the United States. This "solution" presented by Hillary Clinton as a way of dealing with the current economic crisis has its basis in a deadly combination of populism and ignorance. As soon as I read this statement from Clinton, I immediately determined that she is "not fit to rule".
© 2008 Neil McKenzie Cameron, http://one-salient-oversight.blogspot.com/
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12 comments:
There's a sort of accepted wisdom in US politics that during the primaries, Democratic candidates campaign to the left in order to get nominated, but then run to the center to get elected.
I think this was what she was doing: campaigning to the left. It worked for her husband, and since her whole career has been based on the assumption of the short memories and gullibility of voters, she assumed it would work again.
So, I don't think she was lying so much as taking a calculated risk.
The "solution" she has come up with may gain some far left votes but moderate lefties who understand economics will run a mile after hearing this.
And they will find it hard to forget either.
There are quite a few "Pro-growth progressives" out there. The progressive Democrats aren't all full of Marxists.
I agree completely with you that her solution is nonsense. My comments weren't meant as a swipe at progressives. It was a swipe at Hillary Clinton and her cynical approach to the voters.
I for one am happy that the Democrats finally seem to be taking stock of the implications of having Clintonism at the center of our national politics again.
you don't say WHY these are bad ideas?
Why is it bad to stop throwing people out of their homes?
Why is it bad to stop the resetting of the bandit ARM loan rates so again, less people lose their homes?
some reasoning please?
Hey, a Hillary Clinton voter!
Media Hound...I'm not sure where to start. The short answer is that it is not the government's job to protect people (or financial institutions) from the effects of their own bad judgement.
You are making the assumption that all loans made in the last 5 years were usurious and predatory. That is as dangerous an assumption to make as saying all the mortgage holders in foreclosure were sloppy, indigent deadbeats. While I don't deny that some loans were usurious and some mortgage holders will be deadbeats, that is by no means the case (I think) as a whole. It's a copy of sloppy underwriting standards on the part of banks, irrational exuberance in the market on the part of everybody involved, and either willful naivety or outright ignorance of how loans work on the part of consumers. I personally know one couple that took out an ARM loan for a 3-bedroom house and commented at their housewarming party, "Yeah, we're going to have to refinance in a couple of years, but it's okay." In other words, they bought more house than they could afford, and they knew it. It was a breathtaking gap in financial prudence on both the part of the bank AND the part of the mortgage holder, all predicated on the assumption that cheap easy credit would always be available.
Something to remember about families who must change their residence due to foreclosure on a mortgage (I'm avoiding "lose the house" because it's emotionally charged) is that foreclosures don't happen overnight. Typically a mortgage in foreclosure has been deliquent on its payments for anywhere between 3 to 6 months. Mortgage holders who reasonably anticipate financial trouble (like ARM reset shock) can call their bank ahead of time and attempt a refi or a workout. They can attempt to sell the property or see if a bank will accept a short sale or deed in lieu of foreclosure (aka jingle mail). Foreclosures are time-consuming and expensive and no good for anybody. But sometimes they're necessary, and the only way for both parties (bank and signer) to get out of a contract that has turned sour for both of them. Also recall that having a mortgage foreclosed doesn't automatically mean that your hypothetical family will automatically be tossed to live on the street like Colette and Jean Valjean. Rental housing exists and is plentiful, and some people have other options like staying with family, friends, or (for the military) government housing.
There are a couple of problems with following Hillary's advice about freezing all foreclosures for 90 days. First, well, enter the legal nightmare of having the government intervene in a legal and binding contract (assuming no usury or fraud was committed, which I think is fair in most cases) on behalf of the *defaulting* party. Ouch! I can't think of a single other private contract situation where that would fly...it's like me buying a car from my neighbour, and when I couldn't make a payment, the mayor coming in and telling me that it's ok, I could keep the car, and telling my neighbour to shove it and accept that he got screwed. Legally, it'd take some massive changes to existing contract law in order for that to fly. Legislation of that broad, far-reaching nature written in haste is usually really, really bad...see the Patriot Act and the post-Katrina gulf coast rebuilding for examples. Would interest still accrue during those 90 days? How do you deal with vacant or abandoned properties? How do you ensure a fair court hearing for both parties? The mind boggles. It gets even more complicated when you consider that many mortgages were securitized, so you have an additional interested party to the contract. Legally I can't see any way to do this right and without a massive court battle (by the end of which, the mortgage holders it was designed for will probably already be foreclosed).
Second, there is an unspoken assumption that if the government goes in, that it will help the mortgage holder financially somehow. We as taxpayers effectively would be asked to subsidize a certain segment of the population to keep them in mortgages that, let's face it, they can't afford. If, again, we assume that the majority of families in foreclosure are not victims of usury or of fraud, but poor financial decision-making and sloppy underwriting standards, and the government does a "bailout" of sorts, well, the government just rescued people from their own bad judgement. That isn't the government's job. Never has been, never will.
Finally, and more tangibly, the US has done this before and IT DIDN'T WORK. During the farm crisis of the 1980s, thousands of farms went under. The government tried quite a few different tactics to keep people on their farms, including a foreclosure freeze, and the end result was that a farm in danger of foreclosure usually went into foreclosure anyway...whatever caused the landowner to be in so much trouble didn't go away with a 90-day freeze. There is absolutely no evidence to believe that a similar program will work now. At best we can expect it to delay the inevitable.
I had the same thought when I heard her statement (although admittedly I'm not exactly pro-Hillary to begin with): either she's lying or she's an idiot, and either way she has no business running the country. As I said in my blog at the time, it would be hard to find a more demonstrative example of the education problems plaguing the country than the fact that Hillary can make a statement like that and not be laughed out of any election contest for any public office, much less the office of the presidency. I'd go as far as to say if you don't understand why that statement is asinine, do the country a favor and please don't vote.
Have you ever been to Detroit? Until a couple years ago, I hadn't. To this day I have never seen anything like it. An entire city is gutted in the most eerie way, with perfectly good houses, some of them reminders of an elegant architectural past, are vacant and rotting. I saw neighborhoods with 3 out of every 4 houses just boarded up and beginning their decay into vandalism, and for some, eventual arson.
I've lived in poor cities and certainly seen my share of urban decay. But nothing I've ever seen, not even the South Bronx in the '80s compares to the eerie feeling of actual abandonment of entire neighborhoods.That blight of abandoned homes is now spreading to parts of our country that have nothing in common with the problems of Detroit. Suburban California. The boom areas of Florida and Arizona. Developments in Las Vegas. These are places with growing economies where people actually want to live. But the same cancer is taking hold.
That sucking sounds you hear in the U.S. economy? It is actually a vaccuum. And not only does nature abhor a vaccuum, but nothing can actually grow in one. A community can not grow. Tax bases cannot grow. School systems cannot be sustained. I live in one of the most prosperous cities in the United States (New York) and we are already feeling the pinch from the real estate collapse - not in our housing stock as much as the fact that our tax income depends heavily on the financial sector which has taken hit after hit.
And the current administration of Herbert Hoover, excuse me, George W Bush is doing exactly what they did before, during and after Hurricane Katrina - nothing. Just watching people's lives, go down the drain and not caring enough to lift a finger to make a change. Hurricane Subprime is upon us, there is no doubt. But like Katrina, the aftereffects and the devastation will be with us, in our economy, in our communities and in our lives, for years if not decades.
Your arguments against government intervention to change the course of this crisis don't hold water and they reek of indefensible libertarianism. This crisis came about because of lack of government regulation. Were some of these loans predatory? Absolutely. Were all of them? Absolutely not. But right now you have a situation where homes across the board are losing value and the "good" borrowers are being punished with the bad and the virtuous with the sinners. Are all the terms loans bad in and of themselves? Not necessarily. Were some of these loans sold under false pretenses? In some cases yes. I have had friends who were confused when their mortgages began to increase by drastic amounts. They didn't have a clear understanding of what the components of their loan were and how and why these resets would happen. It took a lawyer in one case to unravel the terms (other folks were able to refinance to a fixed rate), and since not many states require that a lawyer be involved in representing buyers in real estate closings, it would not surprise me if this was a fairly common occurence.
Hillary Clinton is not proposing that the government do anything permanent or drastic. She is proposing a "moratorium". That by definition is temporary. I'm not sure why your mind is "boggled" by this and the various legal questions that have to be answered by creating this legislation. The questions you pose are fairly easy to answer. In fact, one of the issues you point out, the fact that these mortgages were securitized is EXACTLY why this moratorium needs to be declared. Many of the buyers who are trying to keep their homes can't even find the right people to talk to. The parties that hold their mortgages don't have any interest or mechanism to negotiate or refinance.
This is EXACTLY the problem that needs to be solved. The banks don't want houses. They want money. This crisis is a new problem and a new financial structure on a scale we have never encountered before and nobody has been thinking of how to solve this particular problem (massive potential foreclosures - many of which are avoidable) on this scale before. This is exactly what a government brokered negotiation could help to provide: a solution that lets banks and security holders keep the value of their investments afloat and homeowners to keep their investment and credit status intact.
Even though you are shouting that this has been tried before and "IT DIDN'T WORK" (!!!!!) does that mean it will not work for everyone? Does that mean that the banks and the government (to represent the people losing their homes and the people concerned about this crisis devaluing their own investment in their homes) shouldn't come together to create a solution that will help some homeowners renegotiate their mortgages? Are you just arguing to do nothing? George W Bush is taking your advice. How well is that working? Do the voters seem to agree with you and Bush? Apparently not. Your doom and gloom and warnings that WHATEVER YOU DO - DO NOTHING (otherwise people who are "serious" about the economy will say that you too are "unfit to rule") is laughable. This is a problem that has the scale and potential to put the U.S. economy under water for years. Doing nothing is government malpractice.
Keep in mind that most of what Clinton is conveying in these soundbites is that she will take action and that she will act on behalf of people who are virtually powerless in their current circumstance about to lose everything they have worked for. This is in stark contrast to the current administration and is exactly the kind of thing that needs to be communicated during an election campaign.
Your scary rhetoric about "NIGHTMARES" and "MASSIVE COURT BATTLES" are baseless as well. The banks want this problem solved. They put themselves into this corner with their own greed and lack of accountability. They don't want properties and massive foreclosures. They want their cash cow back. If you have been reading the New York Times, you will see they have been all but begging the current administration to do something, anything to save them from the mess they have created (including having the government provide mortgages to bail them out).
Your blanket statement that the government shouldn't provide a "bailout" (with your cliched absolutionist rhetoric of "Never has been, never will") is just false. Does the Savings and Loan bailout of the '80's (under Republican administration) ring a bell? Have you ever heard of the FDIC? Hold on to your hat because that is a financial goverment institution whose only purpose is to BAIL PEOPLE OUT. Also, nowhere in Hillary Clinton's statements that you are so harshly critizing does she propose a bailout. It seems that you are very invested in punishing people. I have no idea why that is important to you or why you think people on the wrong side of a vast economic tide need to be punished (or why their communities and their neighbors also deserve the punishment and very real safety issues of living next to abandoned houses). This is actually not a moral issue and since both parties in this case are seriously unhappy, it would seem possible to broker a compromise that would improve the situation on both sides.
Your proclamation that HIllary Clinton because of her position is "not fit to rule" is grandiose and more than a bit silly. Where the hell were you when George W Bush was appointed? Why didn't you deem him "unfit to rule" and stop this whole mess? Boy, you really fell down on the job on that one! Could you please point us to your checklist on what qualities make one fit and unfit to rule so we can apply all United States presidential candidates to your purity test? What paternalistic hogwash.
Mediahound - You forgot in your note to add, "We're all going to die if we don't elect Hillary Clinton!"
Are you absolutely sure that the sub-prime problem happened due to lack of regulation? I think it happened due to too much. I know that concept is hard to accept for a Hillary-ite, but consider: many of those folks who got sub-prime mortgages would not have qualified 10-15 years ago, but due to "fair housing" regulations brought on largely by hype over "red-lining", they were recently able to qualify. However, those regs did not make those folks any less risky. When the inevitable market downturn occurred, they got bit. Sad, but true.
The market is a harsh mistress - even harsher than Hillary (if you can believe it).
I'm not a Clinton supporter and not sure why you would think that since my post didn't have anything to do with her. I certainly think that regulatory neglect and deregulation have had adverse affects on the banking and lending industries, leading directly to the crisis we find ourselves in now.
Also, your point about making redlining illegal (you think perhaps that blatently racist policies should be reinstated?) is not actually what is happening as my post pointed out. The communities that are being crushed by the illiquidity and evaporating home prices are mostly suburban developments.
But, yes, pain is being felt all across the board, including people categorized as "sub prime". What is interesting and is now starting to come out that these defaulted loans are starting to come under scrutiny, is how minorities in the States were often given "sub prime" loans and disadvantageous rates, even though their credit qualified them for better loans. Hmmm, seems like redlining isn't actually dead, it has just morphed into a new form of discrimination.
I'll ignore your sick tone of glee that people are facing such urgent financial crises. I invite you to stay on topic and debate the actual points I actually raised.
mediahound - Forgive me for being skeptical, but I frankly don't believe you when you say you're not a Hillary! supporter. Your note is one long position statement favorably describing what Hillary! will do.
The evidence that redlining is "blatantly" racist is what, exactly? I know it has certainly been loudly asserted to be racist, but loud assertions don't prove anything. I'll even allow there may have been some people who were not given the benefit of a doubt who happened to be non-white. But the fact remains, lenders are more interested in making money (or not losing money) then they are in elevating the Aryan principle. Particularly evil, greedy lenders (you know, the ones Hillary! wants to punish).
Ask some lenders if they found themselves approving marginal loans out of fear they would be sued on racism grounds. By "marginal" I mean loans they would not ordinarily have approved. Two of my brothers are in real estate and they have any number of stories like that. The marginal loans were for homes outside the "redlines", but the borrowers were still high risk.
Secondly, the people aren't categorized as "sub prime", their loans are. It's a financial thing, not a moral thing.
Thirdly, if you think the term "sad, but true" is gleeful, there's little sense in discussing with you because it is pretty obvious you aren't bothering to read what I wrote.
Lastly, you are the one who brought up the subject of deregulation. I responded to the subject you brought up. How did I go off-topic? Was my ability to address your topic in a cogent manner confusing?
And just to be clear, I am not suggesting that anti-redlining regulation is the cause of the sub-prime meltdown. It was only used as an example to rebut your statement that insufficient regulation was to blame.
The root cause of the meltdown was the ruinous inflationary policies of the administration, Congress and the Fed over the last 5 years or so. All that money in circulation, available at historically low rates, was too tempting for lenders both legitimate and unsavory.
Redlining is racist by definition. If you are honestly confused by the term you can brush up by reading the wikipedia entry:
http://en.wikipedia.org/wiki/Redlining
I don't think it's much of a stretch to call it blatantly racist. You have actually been in redlined neighborhoods, haven't you? It's pretty clear who these policies are impacting. Note that I was pointing to a historical problem, but one that clearly is not 100% in the past, as a couple of years ago a very prominent New York City real estate company was cited for redlining.
You can check that out here: http://gothamist.com/2006/10/11/fair_housing_gr.php Note the RED LINES on the map, and then take a gander at the census to see what populations live in those "desireable" neighborhoods vs. the rest of Brooklyn.
Your "cogent" post seemed mostly an excuse for some gratuitious slams at Senator Clinton (whom I will repeat since you didn't seem to understand it the first time, I do not support), always a feature of well reasoned arguments. But I absolutely agree with your conclusion in your follow up post. The cause of this current situation with mortgage defaults and foreclosures was that money was irrationally too cheap for far too long. But the question now is not the cause, but the solution.
Interestingly Bernanke is starting to bang on the door for some intervention stat:
http://www.forbes.com/markets/2008/03/04/bernanke-mortgage-update-markets-econ-cx_cg_0304markets28.html
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