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 |  Subject: Economically Illiterate Obama Urges Regulation in Wake of Housing Slump  Thu Mar 27, 2008 8:50 pm | |
| Senator Barack Obama called Thursday for tighter regulation of mortgage lenders, banks and other financial institutions, even as he spoke of pumping $30 billion into the economy to shield homeowners and local governments from the worst effects of the collapse of the housing bubble.
He laid much of the blame for the current financial difficulties on the industry lobbyists and politicians who dismantled much of the regulatory framework overseeing energy, telecommunications and financial services.
Speaking in the Great Hall at the Cooper Union in Manhattan, Mr. Obama blamed Democrats no less than Republicans for policies that now cast a shadow of foreclosure and insolvency over millions of Americans. He did not mention former President Bill Clinton by name, but the implied criticism seemed clear.
“Under Republican and Democratic administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices,” Mr. Obama said. “The result has been a distorted market that creates bubbles instead of steady sustainable growth — a market that favors Wall Street over Main Street, but ends up hurting both.”
Mr. Obama proposed to rebuild the government’s regulatory structure and promised not to clamp a too-tight hand on economic innovation. But he was unsparing in his view that industry lobbyists and weak legislators produced a misshapen deregulation of the economy.
“Instead of establishing a 21st century regulatory framework, we simply dismantled the old one,” he said. “Aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight.”
Mr. Obama criticized President Bush, describing his proposals for dealing with this crisis as “completely divorced from reality.” And Mr. Obama took on Senator John McCain, the presumptive Republican presidential nominee, who argued this week against vigorous government intervention in the housing market, saying Washington should not be bailing out banks and homeowners who in his view had knowingly plunged into risky mortgages.
Mr. Obama argued Mr. McCain’s approach offers far too little to rescue the deteriorating economy.
“While this is consistent with Senator McCain’s determination to run for George Bush’s third term, it won’t help families who are suffering,” Mr. Obama said.
Much of Mr. Obama’s speech, however, served as a reminder of the thin policy differences that separate his policy views from those of his rival for the Democratic presidential nomination, Senator Hillary Rodham Clinton. Mrs. Clinton gave a speech earlier this week in Philadelphia on the housing crisis, and as often the two Democrats have walked in step.
Both Mr. Obama and Mrs. Clinton spoke of an economy that binds the fates of financial institutions far more closely to those of ordinary Americans than many might guess. Mrs. Clinton said: “In today’s economy, trouble that starts on Wall Street often ends up on Main Street.” And Mr. Obama said: Americans must renew “that common interest between Wall Street and Main Street that is the key to our success.”
Both Democratic candidates spoke of the specter of a national credit crisis and advanced proposals to amend bankruptcy laws to aid the millions of Americans facing housing foreclosure. Each endorsed proposed Democratic legislation — sponsored by Senator Christopher J. Dodd and Representative Barney Frank — to create a new program that would provide ways for homeowners to refinance existing high-interest mortgages.
But Mrs. Clinton said the current financial difficulties were rooted in the housing slump, while Mr. Obama took pains to cast the blame for it on a decade’s long easing of government regulatory oversight.
Mr. Obama said the housing crisis was a result of the popping of yet another large bubble that has distorted the economy during the past decade. And in each case, he said, there was a failure to pass meaningful reforms. No one doubted, he noted, the need to change the Depression-era law that separated commercial banks and investment banks. But, as Mr. Obama’s aides noted in handouts supporting the speech, the banking and insurance industries spent more than $300 million on a successful campaign to repeal the 1933 Glass-Steagall Act in 1999.
This new economic world, Mr. Obama said, granted far more freedom to bankers but without modernizing the regulatory framework and insisting on transparency. And the same pattern played out in the regulation of home mortgages, he said.
“When subprime mortgage lending took a reckless and unsustainable turn,” he said, “a patchwork quilt of regulators were unable or unwilling to protect the American people.”
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