by David Lightman
Senate Banking Committee Chairman Christopher Dodd said today that while he welcomed the Federal Reserve Board's decision to cut its discount rate on loans to banks, it's up to President Bush to take tougher steps to restore consumer and investor confidence in the economy.
"Where's the president?" asked the Connecticut Democrat, speaking from Iowa, where he is spending the week campaigning for the Democratic presidential nomination. "This is an economic crisis that demands the leadership of the president and the treasury secretary."
He noted that it's been government regulators who have tried to take steps to calm the volatile markets. "That you have regulators determining economic policy while the president is up on his boat in Kennebunkport is a little troubling to me," said Dodd. Congress left Washington August 4 and is not due to return until after Labor Day.
Bush, who left Kennebunkport last weekend, is spending most of two weeks at his ranch in Texas. The White House said it is monitoring the situation closely, and welcomed the Fed's action today.
Spokesman Gordon Johndroe said Bush's economic advisers are keeping him updated. "They're in regular communication with him," Johndroe said in Texas today.
"The President's economic advisors, led by (Treasury) Secretary Paulson, keep him updated,'' Johndroe said. "They are in regular communication with him. I can't speak specifically to the Federal Reserve action. I do know that Secretary Paulson called the president yesterday evening to give him an update on the economy and the markets.''
Asked about Freddie Mac and Fannie Mae, government-sponsored agencies that Dodd and others think could help ease the crisis, Johndroe said, "I don't believe the White House is going to have any additional comments on the markets or on the mortgage situation."
Dodd's key message today was not that he endorses a specific instant remedy, but wants the administration to act quickly and in a strong manner.
"You can't get a mortgage anywhere," he said. "Confidence is very important. We're talking about these details, but what is important is that consumers get the sense we're managing this issue, that it's not going to get out of hand."
He is concerned that the current volatility "can have a ripple effect beyond the housing market if we're not careful. While you can argue about how many mortgages can be helped, the idea we're stepping up and increasing liquidity has importance beyond the dollar amount."
The Fed pumped $87.5 billion into the banking system last week, and this week added another $32 billion. The markets continued to decline, so today, it cut the discount rate by one-half a percentage point, to 5.75 percent.
However, it did not change its target for the closely-watched federal funds rate, which remains at 5.25 percent, its level for more than a year. That rate is the interest banks charge one another on overnight lending; the discount rate only deals with loans the Fed makes to banks.
Dodd has been pushing the Fed and other federal agencies for months to act to ease the effects of the subprime mortgage crisis, which helped trigger the current market volatility. Subprime loans are those made to borrowers with poor credit histories, and as their interest rates have gone up, consumers are increasingly unable to make payments. The crisis has since spread to much of the mortgage lending industry.
Among the agencies trying to ease the tension are Fannie Mae and Freddie Mac, government-sponsored agencies charged with helping keep the mortgage market healthy, have contended they need more flexibility to deal with the housing crisis. Dodd thought loosening some restrictions on those agencies could help, but said that decision is up to Bush, not Congress or regulators overseeing the agencies. "We need action more quickly than the legislative process would permit," the senator said.
Last month, Fed Chairman Ben Bernanke appeared before Dodd's committee and warned that losses from subprime credit could reach $50 billion to $100 billion. He also outlined steps the Fed was taking to help ease the crisis, including reviews of policies on pre-payment penalties, the use of escrow accounts for taxes and insurance and other matters. He also said the Fed is considering changes to address mortgage loan advertisements and rules that would make mortgage disclosure easier to understand.
Since then, though, consumer and investor fears have escalated. Dodd has spent most of August campaigning, and said he has spoken to Treasury Secretary Henry Paulson. He would not disclose contents of the conversation.
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Comments
Dodd is right. The president needs to act. It's time to cut taxes once again and spur the economy. Thanks, Chris, for urging what has to be done.
Posted by: Shields | August 17, 2007 2:31 PM
The politics of the market crash:
Blaming rating agencies and computer models, as is being done, or focusing on the bits of data that still look fine (the meaningless unemployment rate, the wealthy-confiscated average growth, the absolute level of the Dow Jones), are just a way to avoid the real debates, the ideological ones:
*that over the supposed superiority of the "efficient markets" to drive economic behavior,
that over the insistence that things be valued in dollars (discounted cash flow) or be worthless,
*that over the idea that greed is good and leads to socially acceptable outcomes.
The core of the Reagan-Thatcher revolution is that greed (especially that of financiers capturing future cash flows of the real world for their personal, immediate profit) spontaneously improves the common good (because it generates apparent GDP out of thin air, and that GDP could be shared) and that all regulations and taxes that limit it should be dismantled.
Well, we're about to see the price of that grand collective delusion. But we should not mistake our target. Bankers and financiers should be made to pay for their follies but that is only a small part of it. The big thing is to blame it on the failed, and utterly dangerous, ideology of the efficient-markets/society-doesn't-exist/government-is-the-problem crowd.
Otherwise it will start again - and not only that, but their proposed remedy WILL be lower wages, fewer worker rights, lower taxes and the other usual "reforms."
The fact that a bubble is now publicly acknowledged ensures that there will be a major economic correction, irrespective of whether there is a full financial meltdown or not. There will be pain. There will be calls for bailouts. There will be further pressure on the lower and middle classes to bear the brunt of the price. Unless we have a coherent alternative economic discourse on the crisis - that of strict regulation of the financial world (real regulation, not the busybody but pretend kind like we have right now), financiers and their paymasters, the wealthy, will continue to capture wealth, even as the pie shrinks.
This is what needs to be blamed, again:
*the ideology of greed (this is the core of the conservative talking point: the idea that being selfish is somehow good for others as it creates more wealth, and thus that unregulated markets are good for society);
*the idea that only financial valuations give worth to anything (again, the cult of the dollar, and the underlying notion that trying to get rich is a good thing for society);
*the notion that wage inflation is bad but not asset price inflation (money going to the poor is bad, money going to the rich is good);
*the shockingly lax monetary policy of the past decade (when markets go up, fueled by what is essentially easy public money, it's capitalism at work; when markets go down, because of poor investments by the rich, it's a systemic crisis and the rich need to be bailed out or else);
the cheerleading by politicians of finance as the new engine of growth and wealth creation (industry, balanced budgets, communities are so yesterday and downright communist and evil);
*the unraveling of existing regulations (like Glass-Steagall) in the name of market efficiency, and the corresponding death of those old engineering concepts, resiliency, safety margins, redundancies, and of old old ethical ideas: reputation, community, duty to future generations.
This suggests a very simple political discourse; fighting these above trends with positive messages.
Wealth is not defined by how the richest fare, and should not be counted via how much they accumulate, but only by how the poorest amongst us are doing.
Society is not doing well when the rich get richer, but when communities care for their members, leave no one behind, and do not focus exclusively on how much money one has to rank and judge members. Richer does not mean better. Together is better.
Things built to last are the most valuable, even if they create no profit today. Infrastructure, education, careful nurturing of rare resources are investments that pay for all in the long run and can be handed over to future generations. Many government tasks are investments, not costs.
The financial crisis, if properly described, provides (together with the Iraq mess, the recent bridge collapse and other tales of Republican corruption) an unbeatable opportunity to make these points loud and clear - and to carry a positive message, not just the "we are not Bush" one.
If the Republicans somehow manage to fool everyone again and hold onto the White House in 08, be certain that the current mindset will continue to prevail and the dominant economic ideology will stay, to the detriment of the vast, but empoverishing middle class.
Posted by: John E | August 17, 2007 2:33 PM
"Where's the President?" He's on vacation. Remember when he said in one of his recent radio addresses that August is a slow news month?
Posted by: RomanB | August 17, 2007 3:10 PM
Of course the President is keeping quiet. The last time he opened his mouth to say the economy was fundamentally sound, the market went into a nosedive. Once you've lost your credibility you've lost your ability to lead. It's going to be a long 16 months.
Posted by: dt | August 17, 2007 3:18 PM
Hey, If Bush couldn't be bothered to show any leadership during his vacation 2 years ago when an entire region was laid waste by a hurricane, why should he show some leadership because some investors have lost some money?
Posted by: Anonymous | August 17, 2007 3:30 PM
Trust me... the president is paying attention to the banking/stock market meltdown... after all, now it's the RICH that are losing money.. We must use the government to stop this!
Posted by: Anonymous | August 17, 2007 4:27 PM
Well at least the President's now concerned... Cheney's moved his money into European Bonds, where Mr. "deficits don't matter" doesn't have to worry about the currency tanking tomorrow.
CHENEY's BETTING ON BAD NEWS?
By Kiplinger's Personal Finance Magazine
Expecting dollar drop?
The Cheneys also had between $10 million and $25 million in American Century International Bond (BEGBX, news, msgs). The fund buys mainly high-quality foreign bonds (predominantly in Europe) and rarely hedges against possible increases in the value of the dollar. Indeed, its prospectus limits dollar exposure to 25% of assets and the fund currently has only 6% of assets in dollars, according to an American Century spokesman.
The Cheneys' total assets could be as high as $94.6 million, according to the disclosure form.
Posted by: david k | August 17, 2007 4:32 PM
This is a train wreck in slow motion. People were given loans they cannot make the payments on. Let everyone learn from their mistakes. Throwing more money into the system only lowers the value of that money, making matters worse. There's nothing George Bush can do about the mortgage situation. Nothing ethical anyway.
Posted by: San Miguel | August 17, 2007 4:36 PM
Sen. Dodd knows better than to call a market fluctuation a crisis. They often occur.
Grown-ups have seen this before.
We've even seen the government controlled Soviet economy crumble, John.
Posted by: whatnow | August 17, 2007 4:50 PM
The current occupant doesn't care about the average American. Otherwise, he'd have not sent 4000+ soldiers to die in an illegal occupation, all the time ignoring the real threat in Afghanistan/Pakistan. When the bill to treat all the Iraq wounded for the rest of their lives is handed to the public, they are going to revolt.The Bush family, in the meantime, gets richer of off oil and guns, and will continue to flaunt their Northeast wealth on their fishing boats.
Posted by: snitramc | August 17, 2007 5:43 PM
John E., are you going to provide a cite to where you copied that post from? No one believes you suddenly gained the ability to write in complete paragraphs.
Posted by: Herbie H. | August 17, 2007 6:54 PM
Pumping up the money supply and lowering the discount rate is truly putting a band-aid on a brain tumor. The "wonderful" real estate economy was fueled by massive, unsustainable debt, to the great benefit of large builders, bankers, insurance companies and other GOP contributors.
Now that the dominoes have started falling this could get really ugly. Printing money and lowering the discount does give the wealthy an opportunity to get liquid (while working stiffs can't do anything about their 401Ks). The wealthy do seem to be the only people who matter to this administration. When the pres made his speech to "the haves and the have mores. Some people call you the elite, I call you my base", I am not sure how much he was joking.
Posted by: Bill H. | August 17, 2007 7:14 PM
'Where's the President?'
On vacation. Thanks for everything, buddy.
Posted by: C.Morris | August 17, 2007 7:40 PM
Is there a second John E posting? The above sounded like an adult.
What does Senator "Bump'n'Grind" want the president to do? Although I like Shields idea. The president can be the president outside the white house. Why doesn't the Senator get Congress back in session?
The fed acted. They did what they thought was best.
Posted by: Terry | August 17, 2007 8:07 PM
Hmmm, Chris Dudd is in Iowa campaigning??? How exactly does that make the Senator Sandwich doing HIS job??
We're in crisis? Because the stock market fell some? Geez, looks like it went up over 200 points today!
And more hysteria from the Loony Left about Bush being on vacation And oh Katrina hit the U.S. while Bush was on vacation. Like if he wasn't on vacation the weather patterns would have gone different and no hurricane hit the U.S.
Truly the most pathetic and deranged beings on the planet: the Loony Left.
Posted by: John D | August 17, 2007 11:48 PM
Remember, bush believes ecomony is good besides, he is busy cutting brush right now.
Posted by: ken | August 18, 2007 8:40 AM
Remember congress and the president are all on vacation the month of August...I think they are on vacation the whole year.
Posted by: lochnessmonster | August 18, 2007 10:36 AM
Johnny Delusional...the only person in America who thinks Bush handled Katrina competently. It's not that he was on vacation, Dyslin. It's how he mishandled things before, during and after. Check the time-line. Bitch about the source, but citations and documentation are included so people can decide for themselves:
http://thinkprogress.org/katrina-timeline
Posted by: dt | August 18, 2007 11:58 PM
WRT the stock market, the market makers have been squealing for interest rate cuts for full on a year now, and won't be satisfied until the Fed complies. To achieve that end, the stock market will continue to wallow in the muck down 10% until the fed dumps a load of feed in the trough, that comes in the form of a rate cut 9/15.
Wouldn't an interest rate cut also benefit homeowners that have an adjustment to their rate upcoming (an unintended consequence)? That might also help save their homes because the prime rate would be lower, isn't that right? So, may we expect a new stock market bubble to start blowing 9/15 or so?
Posted by: montymarket | August 20, 2007 11:57 AM