This past week, all three presidential candidates gave major speeches on housing and the economy. Hillary Clinton highlighted her extensive work on the subprime housing crisis and Barack Obama emphasized a modernization of the institutions that regulate the financial industry for the federal government. John McCain, in a widely panned speech, offered no new proposals on either subject. In late January, McCain told reporters, "Even if the economy is the, quote, No. 1 issue, the real issue will remain America's security
I am running because of the transcendental challenge of the 21st century, which is radical Islamic extremism."
Clinton and Obama's speeches, though they had slightly different focuses, underscore the difference between the Democrats and the sole Republican in terms of economic aptitude.
Both Clinton and Obama said that trouble on Wall Street eventually hurts Main Street, and vice versa. Both offered sympathy to families going through foreclosures and tough love for bankers and financial types who rode mortgage-backed securities to ruin. Obama was willing to say plainly "our economy is in a recession," while Clinton went only so far as to say "our economy is in serious trouble."
Clinton claimed that she's been on the subprime hunt for a while now, and she's right. In March 2007, she told the National Community Reinvestment Coalition that she wanted to expand and reinvigorate the Federal Housing Authority, so it could offer "more mortgages at better rates." She also called for "more counseling and information" for potential homeowners, so they could avoid high-interest loans. Shortly thereafter she introduced the 21st Century Housing Act, a bill which, if it were to become law, would use these proposals and others to address the subprime mortgage crisis.
In October 2007, she followed up by proposing criminal penalties for foreclosure consultants and lenders who take advantage of naïve homebuyers. She suggested making a $100 million fund available to the states so they can more effectively prosecute foreclosure fraud and assist homeowners who have been duped.
Clinton's speech this week went even further than her past proposals. She called for "meaningful broker licensing standards" to screen mortgage brokers and govern their conduct. She also called for all brokers to register with the federal government. She reiterated her support for a 90-day moratorium on all subprime foreclosures and a voluntary five-year freeze on interest rates for subprime mortgages.
In a move that elicited smirks across the Internet, Clinton also suggested an "emergency working group on foreclosures" that would be led by Alan Greenspan, the former Fed Chair who neglected the growing housing crisis for years, and Robert Rubin, the former Treasury Secretary who is currently the Director and Chairman of the Executive Committee of Citi.
Finally, Clinton announced a $30 billion stimulus package that would "go directly to cities and states to address the housing crisis." It would allow cities to purchase foreclosed or "distressed" properties, which they could then convert into affordable housing units.
Senator Obama could point to a less extensive history of action on the housing crisis, but paired his proposals on that subject with ideas for modernizing the regulation of America's financial industry, a topic Clinton ignored this week and has touched on only briefly in the past. Both Obama and Clinton are somewhat compromised on the issue: They have both received millions from securities and investment firms, and Clinton friend Rubin was a key deregulation advocate in the '90s.
Speaking on Thursday, Obama said that because of "new and complex financial instruments like hedge funds and non-bank financial companies" we need to create "a 21st century regulatory framework." Regulatory reform should rest on several core principles, Obama suggested. The first being that because banks borrow from the government, they ought to be subject to government oversight. "The Federal Reserve should have basic supervisory authority over any institution to which it may make credit available as a lender of last resort. When the Fed steps in, it is providing lenders an insurance policy underwritten by the American taxpayer. In return, taxpayers have every right to expect that these institutions are not taking excessive risks."
But Obama was quick to assure his audience at Cooper Union that he wasn't suggesting a new and burdensome bureaucracy. "Reshuffling bureaucracies should not be an end in itself," said Obama. "A streamlined system will provide better oversight, and be less costly for regulated institutions." The priority is to make the federal government's oversight apparatus more modern, and fit to keep pace with the financial industry's constant innovation and evolution.
Clinton's record on regulation is somewhat impoverished. In November, she acknowledged that innovations in the financial industry present "new threats." In December, she called for "an industry-wide commitment to tightening underwriting standards and disclosure obligations." But she has not previously discussed renovating or modernizing America's regulatory capacity at any length, and did not do so on Monday.
Obama also provided suggestions for dealing with the housing crisis. He mentioned the FHA Housing Security Program, which he introduced into the Senate with Chris Dodd earlier this month. If passed, the Dodd-Obama legislation will provide incentives for lenders to convert adjustable rate mortgages that are currently problematic into stable 30-year fixed mortgages. Obama also proposed a $10 billion fund that would help struggling homeowners sell their homes or modify their loans. He suggested tougher penalties for fraudulent lenders, and a "Home Score system" that would allow potential homeowners to learn more about mortgage offers. These ideas mirror those Clinton has unveiled previously.
Obama reiterated his support for middle class tax cuts and the elimination of all incomes taxes for retirees making less than $50,000 a year. He also suggested a $30 billion stimulus package targeted at communities hardest hit by the housing crisis. It parallels very closely the stimulus package put forward by Clinton on Monday.