The new US national deficit numbers announced on Monday, a record high, were the latest sign of an economy in decline, with foreclosures rising, home prices falling, soaring energy prices and nearly a half-million jobs lost since January.
Democratic presidential hopeful Barack Obama, met with more than a dozen economic advisers in Washington, DC. Obama’s economic team includes deregulators Paul Volcker, Robert Rubin and Paul O’Neill. TRNN speaks with economist and author Ellen Frank: “it’s not clear that these are the people that are going to lead us to a new regulatory environment that can prevent some of the problems that we’re living through right now”.
Story Transcript
from the Obama camp than there is from the McCain camp. As far as I can see from McCain’s website and his public statements, he does not seem to have an economic policy or many plans for the economy beyond the continuation of the Bush-era tax cuts.
Economic burdens for next president
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JIM NUSSLE, WHITE HOUSE BUDGET DIRECTOR: For 2009, the deficit is projected to rise to $482 billion, or 3.3 percent of GDP.
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CARLO BASILONE: The new US national deficit numbers announced on Monday, a record high, were the latest sign of an economy in decline. With foreclosures rising, home prices falling, soaring energy prices, and nearly half a million jobs lost since January, Democratic presidential hopeful Barack Obama met with with more than a dozen economic advisors in Washington, DC. Present at the meeting were AFL-CIO president John Sweeney, Google chairman and CEO Eric Schmidt, and New Jersey Governor Jon Corzine; billionaire investor Warren Buffett joined by speaker phone.
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SEN. BARACK OBAMA, PRESIDENTIAL CANDIDATE (D): Warren, are you on? Good to talk to you.
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Also present at the meeting were former Fed chairman under Carter and Reagan Paul Volker and two former treasury secretaries: Paul O’Neill from the George W. Bush administration and Robin Rubin from the Clinton administration.
PROF. ELLEN FRANK, ECONOMICS, UNIVERSITY OF MASSACHUSETTS: One of the things that is somewhat disheartening about about Obama’s economic team is that if we are looking for change, then it’s not clear we should be looking towards the people who got us to the situation we’re in today. And the people who brought us to this point are those who championed financial deregulation during the ’80s and ’90s. And first and foremost among those would be Paul Volcker, who began the process of deregulation in the early 1980s. Robert Rubin continued that in the 1990s, championing the repeal of what was known as the Glass-Steagall Act that regulated banks, in 1999. And then, of course, Paul O’Neill, under the Bush administration, continued to be an advocate for further financial deregulation. So it’s not clear that these are the people that are going to lead us to a new regulatory environment that can prevent some of the problems that we’re living through right now.
BASILONE: On Saturday in a rare weekend session, the US Senate passed a housing rescue bill aimed at sparing 400,000 struggling homeowners from foreclosure. But it was also a financial bailout of the troubled giant mortgage companies Fannie Mae and Freddie Mac. Those ailing companies back or own US$5 trillion in mortgages, or nearly half the US total. President Bush, originally opposed to the bill, signed it into law on Wednesday morning.
FRANK: The bailout, unfortunately, is necessary because Fannie Mae and Freddie Mac, these two giant mortgage dealers that are quasi-private, quasi-public entities, are so large that if they failed and they were on the verge of insolvency, it would have serious repercussions and snowballing effects throughout the financial system. What the bailout package failed to do, however, was to enact any kind of quid pro quo for this aid to the financial sector, for example imposing significant capital requirements, imposing new forms of regulation. In the case of Fannie Mae, you know, it probably would make sense to consider nationalizing it—it was in fact a national entity and part of the federal government until 1968—because if we’re going to socialize the losses and make the public bear the cost of losing money, the public should also reap the benefits when Fannie Mae is doing well.
BASILONE: Now, what’s the possibility of either John McCain or Barack Obama nationalizing these companies?
FRANK: Certainly I think that, you know, the discussion has begun, and I do appreciate the fact that at the summit that Obama held yesterday, there was a discussion begun about re-regulation of the financial industry and what we can do to avert further crises like this. So there’s certainly more coming
BASILONE: What should the government be doing to help middle- and low-income Americans? What should the government be doing for people? And what should people be asking the government to do?
FRANK: I think what the federal government needs to do is to protect Americans against the vagaries of markets. Financial markets, when they are deregulated, are very volatile. But also regular markets: the oil market and the housing market are very volatile. Prices go up and down. People have difficulty managing to live a stable economic life. And one of the things that governments can do and that many governments do do is to take some of the things that people need outside of the marketplace so that people have some basic standard of living that they can count on. You know, providing health care that is mandated or provided through the public sector is one way that people can be protected from the vagaries of the market, so that their health care is not dependent upon an employer, it’s not dependent upon their having wealth, or anything like that. Making sure that our educational system is well funded, making sure that people can afford colleges and that colleges have plenty of openings at affordable prices, these are things the government can do to help people live more stable lives, even in the midst of a volatile global economy.
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