Lay Blame and Get the Economy Moving Again

Lay Blame and Get the Economy Moving Again

By Ed Koch - December 17, 2008

The economic meltdown seems to worsen by the hour. As we are hit with report after grim report about the state of our economy, the U.S. Congress and the President seem willing to bail out almost every special interest with clout . In the meanwhile, millions of Americans have seen their savings, particularly their investments in the stock market and homes - the latter being their largest asset - deteriorate, sometimes by 50 percent or more. One is left to wonder who will rescue ordinary Americans from what is feared may become another Great Depression.

According to the November 26th New York Times, "In the last year, the government has assumed about $7.8 trillion in direct and indirect financial obligations. That is equal to about half the size of the nation's entire economy and far eclipses the $700 billion that Congress authorized for the Treasury's financial rescue plan." That includes the federal guarantees provided to Fannie Mae and Freddy Mac, the great mortgage providers. Where does this money come from? Have we borrowed it, and if so, from whom? What percentage of the national budget is now used to pay off this debt and the interest it has incurred? Are we simply allowing the Federal Reserve to print money used for bailouts? If so, what is the effect of that on our economy, currently and in the future?

Now we are learning of individuals in the private financial sector who have stolen billions in so-called Ponzi schemes. Charles Ponzi was a con man who promised large profits to investors, but who in reality was using the money of later investors to pay huge profits to earlier investors, while stealing some of the money for himself. The swindle works for a while, but when there are no new investors and existing investors begin asking for their money back, the scheme collapses quickly.

The public is frightened about the future and has every reason and right to be. Retired people worry how they will pay their current expenses, with their savings depleted. Those about to retire have in many cases concluded they can't, but must continue working to replenish their now reduced retirement savings. Even kids are becoming fearful about the future. A friend told me of a recent conversation between him and his six year old daughter. The child said to her father with anxiety on her face, "Daddy, are you losing your job?" Her father replied, "No, sweetheart, why are you asking that question?" The daughter responded, "Two of my friends at school told me their dads had been fired." Said daddy, "No, sweetheart, don't worry. I am not losing

my job."

President Bush has not provided the confidence we need to reduce the anxiety level. Indeed, he and his appointees over the last eight years are responsible in great part for the financial mess we are in. They refused to adequately monitor through federal regulatory agencies such as the SEC, the Federal Reserve, Freddie Mac and Fannie Mae, the very industries which have contributed to the country's enormous economic distress.

Alan Greenspan, former chairman of the Federal Reserve, who had no hesitation in taking bows when the bubbles were producing profits, commenting "excess extraordinaire," but offering no regulations, has provided a very modest apology for his role in failing to regulate. According to The New York Times of November 2, 2008, Greenspan "acknowledged in a Congressional hearing last month that he had made an 'error' in assuming that the markets would properly regulate themselves, and added that he had no idea a financial disaster was in the making. What's more, he said the Fed's own computer models and economic experts simply 'did not forecast' the current financial crisis."

Christopher Cox, Chairman of the S.E.C., has lots to apologize for, including deregulation. But his latest vulnerability relates to the $50 billion debacle engineered by Bernard L. Madoff. The Times of December 16th reports, "The latest black eye for the commission came when inspectors and agency lawyers missed a series of red flags at Bernard L. Madoff Investment Securities. If it had checked out the warnings, the commission might well have discovered years ago that the firm was concealing its losses by using billions of dollars from some investors to pay others."

"Similarly," reports The Times, "the agency's chairman, Christopher Cox, assured investors nine months ago that all was well at Bear Stearns. It collapsed three days later."

Some members of Congress, such as Congressman Barney Frank and Senator Chris Dodd, who bullied Freddie Mac and Fannie Mae to relax and change their elementary rules on creditworthiness, the ability to make mortgage payments, have not accepted any blame for the sub-prime mortgage crisis. They undoubtedly wanted to extend the American dream of home ownership , but foolishly or dogmatically sought to do so to those unable to afford the mortgage payments.

President-elect Barack Obama, by his appointments to date, has conveyed to the country that he is a person of moderate political views and has been applauded for his appointments. His policies cannot be implemented until January 20, 2009 when he assumes the office of President. The way things are going, an enormous amount of suffering will take place between now and then. So what to do?

I believe Obama's economic team should propose to the President, the Congress and the public what they will seek to do when they take office and ask President Bush and the Congress to support implementing those proposals now. If President Bush declines, the Democratic majority now in both houses should seek to advance them. The Republicans will have a choice - support the new president or filibuster in the Senate and take responsibility for the added economic damage incurred from now to the inauguration in addition to that of the last eight years. It's time to recognize what went wrong, who was responsible, and lay out the programs that could get the economy moving again

Ed Koch is the former Mayor of New York City.

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