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The New Hoovers

From Think Progress
A Project of the Center for American Progress Action Fund

This week started off rough. In fact, Monday was the first "Black Monday" of the century, comparable, as the Center for American Progress's Andrew Jakabovics notes, to "the 20th century's signature day in financial history back in the Fall of 1929." By the end of the day, the Dow Jones had dropped 504.48 points, "the biggest decline since Sept. 17, 2001 -- the day the index reopened after the 9/11 terrorist attacks -- when it fell 7 percent, or 684.81 points." Topping that off were the failures of Fannie Mae, Freddie Mac, Lehman Brothers, and AIG, as well as new worries over Goldman Sachs and Morgan Stanley. "What we are witnessing may be the greatest destruction of financial wealth that the world has ever seen -- paper losses measured in the trillions of dollars," writes the Washington Post's Steven Pearlstein today.

Presiding over this chaos was President Bush, who has consistently chosen to deny that anything was wrong with the markets. Sen. John McCain (R-AZ) has also been there cheering on this disastrous de-regulation, and is only now trying to pretend that he had always favored more robust oversight. House Speaker Nancy Pelosi (D-CA) has ordered a probe of Wall Street and in the coming days, and she plans to demand testimony from various Bush administration officials and other Masters of the Universe.

HOOVER 2.0 -- GEORGE BUSH: As recently as a few months ago, when it was already clear that the financial markets were in turmoil, Bush was trying to continue his do-nothing economics. "The President's hands-off attitude is reminiscent of Herbert Hoover in 1929 and 1930," Sen. Charles Schumer (D-NY) said in March. Last year, Bush was telling reporters that he wasn't very good at economics since he received only a "B in Econ 101" (in reality, he received the equivalent of a C-). However, this hands-off approach is what has propelled the current financial crisis. According to the Washington Post, both Republican and Democratic lawmakers alike "said the crisis is in part result of insufficient government regulation on Wall Street." "Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke need to face squarely the vast array of mistakes made by the Bush administration's financial regulators over the past eight years," notes Jakabovics. Last year, instead of aggressive measures to help home mortgage borrowers, lenders, and investors work out payment problems with federal supervision, the Bush administration embraced Paulson's "voluntary debt workout plan, called Hope Now, which (let's be frank) failed to help homeowners or the larger home mortgage marketplace," Andrew Jakobovics of the Center for American Progress observed.

HOOVER 3.0 -- JOHN MCCAIN: McCain often says he tries to model himself after President Teddy Roosevelt, but perhaps Hoover might be a better comparison. Over the past year, McCain has described the economy's fundamentals as "strong" at least 18 times. He said it most recently on Black Monday: "Our economy -- I think still, the fundamentals of our economy are strong." His rhetoric echoes what Hoover said on Oct. 25, 1929, a day after what is now known as Black Thursday : "The fundamental business of the country, that is the production and distribution of commodities, is on a sound and prosperous basis."

McCain is now trying to portray himself as a financial wizard, someone who believes "in excess government regulation" and "warned" federal officials of a potential subprime mortgage crisis as far back as two years ago. In reality, McCain has been clueless about the economy. "I'd like to tell you that I did anticipate it," McCain said in November 2007 of the financial crisis, "but I have to give you straight talk, I did not." In fact, he has been a leading advocate of deregulation. New York Times columnist and Princeton economics professor Paul Krugman has pinpointed Phil Gramm as one of the architects of the current financial crisis and the "odds-on favorite to be the Treasury Secretary" in a McCain administration. Gramm orchestrated the Gramm-Leach-Bliley Act in 1999, which "destroyed the Depression-era barrier to the merger of stockbrokers, banks and insurance companies." He also pushed the Commodity Futures Modernization Act in 2000, which made legal "the mortgage swaps distancing the originator of the loan from the ultimate collector." The Nation writes that "those two acts effectively ended significant regulation of the financial community."

MAKING THE COUNTRY SAFE: In order to restore confidence in the financial markets, policymakers need to "protect homeowners and communities by preventing the continued acceleration of home foreclosures and by restoring confidence in the credit markets," the Center for American Progress notes. With this goal in mind, earlier this year, the Center for American Progress proposed a Saving America's Family Equity (SAFE) program, which recognizes that "both borrowers and investors, and ultimately taxpayers, are better off when loans are restructured rather than allowed to proceed to foreclosure." This plan would "promptly facilitate the bulk transfer of mortgages into the hands of new private owners with the incentive and ability to modify or refinance the loans." The housing bill recently passed into law reflects these principles, mandating a Treasury study of mortgage pools base on the SAFE program. As Jakabovics writes, a first step for the Bush administration would be to accelerate this study so that "regulators can get down to the real business at hand -- finally fixing the problem in the mortgage marketplace at its source."

Photo courtesy of the Agonist, Cliff Schecter, with sepia toning and an apology to Herbert Hoover from the editor of the California Progress Report.

This material appeared on Think Progress, a project of the Center for American Progress Action Fund and is republished with their permission. Click here to subscribe to their daily email.

Posted on September 18, 2008

Comments

The sky is falling! The sky is falling! oh wait the market is up 450 points, sorry to panic you!

Markets must be allowed to fail, you can't bail everyone out who makes bad decisions. Let the lenders fail and let the borrowers fail and those of us who practiced sound financial management will survive and prosper. The risks the that individuals and companies took were akin to gambling, throw your money down on red and hope you win. I don't think we should back gambling losses in Vegas and we can't back business and personal losses either. Time to buck up and face the consequences of your personal decision. People are losing their homes because they took out loans they could not pay back. The financial institutions are failing because they made loans to people who couldn't pay them back. They both should suffer the same fate.

Posted by: sean at September 18, 2008 01:17 PM

Kind of a shame when the "Progressives" who use Hoover here didn't allow for the good things he did both as President and afterwards ala Jimmy Carter. It is much easier to bash his "failure" as FDR is the one who obviously "saved" our economy...

Of course, a wartime economy instituted a year or two BEFORE Pearl Harbor will do that...(1933-39 wasn't working out well)

Would it be just as fair or accurate to mention Henry Wallace, FDR's Vice President before Truman and the Progressive Parties (3rd Party)Presidential Candidate in 1948?

Why did FDR dump him for Truman in 1944?

Why did he nearly split the Democratic Ticket for a Republican (Dewey) Victory (the traitor!)

Henry Wallace OPPSED Truman and wanted "closer" relations to the USSR, even though the USSR opposed the Marshall Plan and simultaneously blockaded Berlin necessitating the Berlin Airlift in response.

Truman said, "You can fight communism on November 2nd (1948) with a Democratic vote" (aka not a "Progressive" one).

Four days after the Truman reelection Wallace had his first public appearance, at a reception held at the Soviet embassy in honor of the 31st anniversary of the Russian (Communist) Revolution.

If their candidates support communists, are Progressives pro-communist or communists by association?

Besides, todays Wall Street Problems are Freddy Mac/Fannie Mae caused by and large.

"Lets give variable interest loans to those who cannot pay their mortgage when the variable INCREASES." That makes sense...NOT!

Outfits "managed" by democrats, some Obama's financial advisors today, giving vast political donations to democratic candidates, being highly paid at the highest levels while the things crumbled (just like at Enron!) and had "oversight" by Democrat Congressman Barney Frank as Chair of the Banking Committee.

Just WHAT were these guys up to?

Posted by: Jay Gould at September 18, 2008 04:59 PM

I don't think Sean and Jay get it.

They don't get the fact - regardless of the amount of available financial education, or level of buyer sophistication - that this "mortgage meltdown" was the result of mortgage brokers' PREDATORY LENDING PRACTICES inflicted upon the UNSUSPECTING buyer public. This problem was CAUSED, not by unsophisticated buyers, Fannie Mae & Freddie Mac, Communism, Hoover, FDR, Wallace, Truman, Dewey, Clinton, Obama, Frank, or even Enron; none of THEM schemed to remove the safeties from our economy! It was caused by the strategic-yet-deceptive replacement of a trusted, critical regulatory protection in place since The Great Depression (the Glass-Steagle Act of 1933) by predatory laws (the Gramm, Leach, Bliley Act of 1999, the Commodity Futures Modernization Act in 2000) that gave rise to such abusive practices.

And that's what makes deregulation, here, a predatory tool. First the crooks quietly subvert the protective element of homeownership. Then they aggressively, if not shamefully, market "new incentives" to minorities and the working poor, that they are all too eager to apply in their desperate-yet-renewed quest for the American Dream. Next, after stirring up their hopes to a foregone conclusion, they spring their multi-tiered trap of inflated property appraisals, equity-robbing interest rates, highly-leveraged finance terms, cleverly-hidden penalties in the fine print, etc. Finally, boom turns to bust, the building and buying stops, and the homeowners realize the bone-chilling truth. They are now hopeLESSly snared between their falling home values and the rising costs of their over-leveraged mortgages. When you take recession "bonuses" ,like rising gas prices and higher unemployment rates, and add them to record-level foreclosure rates, bewildered homeowners then find themselves in uncharted waters, and (literally) can't sell their way out of trouble!

Clinton may have signed the deregulation legislation into law, but he, like the rest of us, was also duped by Gramm & Company. They told him what Bush Administration told us about Iraq, and what Paulson told Congress about nationalizing America's debt; that there is simply no other way. Well, I don't buy it! The impetus behind the duping and fleecing of unsuspecting Americans by the power-elite is, as it has always been, greed. The problem is that, when counted on in our time of need for the wise stewardship of our collective debt, these crooks betrayed the public trust of unsophisticated AND sophisticated debt-holders alike! Now, in following up with this $700B bailout proposal, they threaten the very integrity and stability of our national infrastructure, WHICH IS NOW EVERYONE'S PROBLEM!

For doing nothing when they should've acted, for acting hastily when prudent inaction was the better call, for this heinous, treasonous plan perpetrated on the American public, now in its terrible finale, these greedy crooks - Bernanke, Paulson, Gramm, Lieberman, McCain, the lobbyists, and, of course, the Bush Administration - should be held to account, for this gross misuse of power, to the fullest extent of the law.

Now, that's change I can believe in!!!

Posted by: Court at September 23, 2008 07:34 AM

I don't think Court gets it...

While much of what you say has validity, such as current republican government officials in watchdog positions didn't do their jobs...

...there were DEMOCRATS in Chris Dodd and Barney Frank in CRITICAL congressional government oversight positions (Chairs of critical congressional committees for the past two years and members for much longer than that) who didn't warn us of any impending financial disaster but in fact encouraged it by their own personal selfishness.

If you don't like Ken Lay at Enron getting millions overseeing a failed company and screwing Enron's investors...

Then how do you feel about Democrat Franklin Rains doing the same thing over at Freddie Mac?

Obama is the SECOND largest recipient of campaign contributions from failed Rains run Mac, but he is FIRST in how quickly he secured such large sums in the shortest time as a freshman senator.

BOTH parties have failed the taxpayers. Only a partisan would see how only one party "did it" all by themselves.

Posted by: Jay Gould at September 23, 2008 09:18 AM

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