Critics Say Bush Is Out of Touch on the Economy
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Bush Supports Fed's Actions, but Critics Quickly Find Fault [
Critics Say Bush Is Out of Touch on the Economy
By Maura Reynolds and Janet Hook
The Los Angeles Times
Monday 18 March 2008
They say the president's comments show he doesn't seem to grasp the gravity of the country's financial turmoil.
Washington - In some ways it was a throwaway line, the kind of praise a boss tosses out casually. But as the economy teetered Monday, President Bush's words to Treasury Secretary Henry M. Paulson struck many as discordant and disengaged.
"I want to thank you, Mr. Secretary, for working over the weekend," Bush said as he met with his economic advisors at the White House. "You've shown the country and the world that the United States is on top of the situation."
Actually, many analysts and critics said, by focusing on Paulson's working hours instead of on the fear gripping Main Street and Wall Street, the president seemed to show just the opposite - that he has failed to grasp the gravity of the country's economic crisis.
"He has no idea what's going on. Even by his standards, he's wrong," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who said he had been trying to get the president to pay more attention to the economy for more than a year.
Bush's "working over the weekend" line also suggested a comparison to another disaster in which he was accused of acting too slowly: Hurricane Katrina. After the storm, the president was ridiculed for praising FEMA Director Michael D. Brown for doing "a heck of a job" - even as thousands remained stranded in floodwaters in New Orleans.
It is unclear whether Bush or his administration could have done more, sooner, to address the cascading financial crisis that started with sub-prime mortgage defaults and led to the collapse of Bear Stearns, one of Wall Street's most venerable investment firms.
Economists point out that it is the Federal Reserve, which operates independently of the administration, that is in charge of regulating banks and the monetary system. And it was Fed Chairman Ben S. Bernanke who led the weekend effort to rescue Bear Stearns.
"Policymakers talk like they have an ability to affect these things, but their ability is very, very limited," said Robert D. Reischauer, president of the Urban Institute and the former director of the nonpartisan Congressional Budget Office. "The Fed is emptying its gun right now. If the markets continue to falter, there is not a heck of a lot policymakers are able to do."
Many of Bush's Republican allies were pointedly silent Monday as the president and Paulson tried to avert a larger financial meltdown. Democrats, on the other hand, pressed their advantage, arguing that the administration is more responsive to a crisis that hits Wall Street than one that hits Main Street.
"The same focus and aggressiveness the administration directed toward rescuing Bear Stearns should be applied to the economic problems facing America's homeowners," Sen. Jack Reed (D-R.I.) said.
For his part, Paulson tried to make the case that the Fed's action over the weekend did not qualify as a "bailout" of Bear Stearns because the investment house's stockholders lost a lot of money.
"This was an easy decision. This is the right outcome," Paulson said.
Still, some economists and lawmakers said that the administration had too strongly resisted efforts to regulate either the mortgage industry or Wall Street's new mortgage-backed securities out of a misplaced faith in free markets.
"There are all kinds of things they could have done in the past," said William A. Niskanen, a conservative economist at the Cato Institute. Bush is "not personally up to date on the problems in the credit market. He has good advisors in Treasury, but even they have been late in understanding the nature of the problem."
Fifteen months ago, Niskanen said, administration officials were focused on concerns about the securities market. Six months ago, their main concern was people with adjustable rate mortgages. They failed to act on a report by the Boston Fed indicating that the rash of foreclosures was caused by the value of houses dropping below the mortgage.
"They should have been and still need to be more aggressive in response to the problems in the mortgage market because that is at the root of what's going on," said Mark Zandi, chief economist at Moody's Economy.com. "I don't think the Fed can solve this on its own."
Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, said he had been trying to get the administration to tighten the rules for mortgage lenders for more than a year - to little avail.
"They could have done a lot of things over the last year, in my view, to make a difference and refused to do so," Dodd said. "They are lagging in terms of their response to all of this. Had steps been taken over the last year, we could have avoided a lot of this."
Frank said that when Congress returns from its spring recess, he will revive ideas the administration previously shunned - including regulating investment firms more like banks, forcing them to reveal more of their liabilities to shareholders, and issuing new rules for the government-chartered mortgage holders Fannie Mae and Freddie Mac.
But ultimately, Frank said, the country must debate re-regulating the financial markets.
He noted that even during the Clinton administration, "we just accepted this notion that the market knows best."
"All these years of deregulation by the Republicans and the absence of regulation as these new financial instruments have grown have allowed them to take a large chunk of the economy hostage," Frank said. "And we have to pay ransom, like it or not."
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Bush Supports Fed's Actions, but Critics Quickly Find Fault
By Steven Lee Myers
The New York Times
Tuesday 18 March 2008
Washington - President Bush on Monday welcomed the Federal Reserve's sweeping intervention in the nation's financial markets as his administration faced accusations that it had supported the bailout of a prestigious investment bank while doing little to address the hardships of Americans facing foreclosures on their homes.
Meeting with his economic aides at the White House in the morning in the first of two meetings on the economy, Mr. Bush again sought to project optimism at a time of financial turbulence after the Fed's brokering of the takeover of Bear Stearns by JPMorgan Chase.
Mr. Bush singled out Treasury Secretary Henry M. Paulson Jr. for praise, saying he had shown "the country and the world that the United States is on top of the situation," an assertion that was broadly disputed by the president's critics.
"I want to thank you, Mr. Secretary, for working over the weekend," Mr. Bush said in brief remarks in the Roosevelt Room.
The president's remarks and his schedule underscored the growing political concern about the economy on a day that would otherwise have been devoted to traditional St. Patrick's Day meetings and events.
The issue also spilled into the presidential campaign, drawing reactions from both Democratic contenders and the presumptive Republican candidate, underscoring how much the economy has overshadowed the war in Iraq, even as the fifth anniversary of the start of that war approaches on Wednesday.
Mr. Bush, between an Irish-American lunch on Capitol Hill and a dinner at the White House, met with a group of advisers and regulators that included Ben S. Bernanke, the chairman of the Federal Reserve, who has orchestrated a series of moves intended to rescue the nation's financial markets from what officials feared could have been a chain reaction of defaults.
Mr. Bush's handling of the economy has vaulted to the top of the political agenda, where the White House would clearly it rather not be. He stood accused on one hand of violating his own ideological opposition to government intervention and on the other of not doing enough to protect the nation's economy from the disarray in the markets.
"Now that the president has shown his willingness to bail out Wall Street at taxpayer expense, I hope he will drop his opposition to proposals designed to help ordinary homeowners," Senator Harry Reid, Democrat of Nevada and the majority leader, said in a statement.
Senator Barack Obama of Illinois declared the economy "in shambles," but he and his rival for the Democratic presidential nomination, Senator Hillary Rodham Clinton, trod carefully, expressing concern about the broader market and, in Mrs. Clinton's case, for the employees of Bear Stearns, based in her home state, New York.
"There is no doubt that we are teetering on a potential crisis on Wall Street that could have ramifications all across the country," Mr. Obama said at a news conference after meeting with voters during a campaign stop in Monaca, Pa., a town near the Ohio border. "We have a credit market that is locked up."
Mrs. Clinton said that Main Street was as important as Wall Street, but like many Democrats, she did not directly criticize the government's intervention in the sale of Bear Stearns. In a statement, she noted that she had spoken with Mr. Paulson and the president of the New York Federal Reserve Bank, Timothy F. Geithner. She urged that the administration do more.
"We have blown it," she said at a news conference in Washington in which she linked the economic turmoil in part to Iraq. "And one of the reasons why we must end the war in Iraq is we cannot afford it. We have got to get control of our economic destiny. There are so many danger signs on the horizon."
Senator John McCain's campaign issued a statement expressing confidence in the Federal Reserve and Mr. Bernanke, but pointedly excluding any reference to the president.
"John McCain understands the federal government's responsibility to ensure the stability of the U.S. financial system and is equally committed to protecting the pocketbooks of hardworking American families," the campaign said in a statement by Doug Holtz-Eakin, a senior policy adviser.
The Fed's intervention in the case of Bear Stearns intensified calls for the administration to reverse Mr. Bush's well-known embrace of laissez-faire economic policies.
Mr. Bush's aides have argued that he has acted aggressively since August to address a financial crisis that was already on the horizon, pointing to the $168 billion economic stimulus package that he had negotiated with Congress this year.
The Internal Revenue Service announced on Monday that the first of 130 million rebates - typically $600 a person or $1,200 for most married couples - would be sent electronically by the first week of May and later by mail until the end of July.
Mr. Bush's senior aides have said that they hoped the economy can withstand any further buffeting until the effects of those rebates are felt during the spring and summer of the year. The relative stability of Wall Street on Monday raised those hopes.
But the speed of Bear Stearns's collapse pointed to the danger that the administration and the Fed could be forced to act again soon.
A senior Treasury official, explaining Mr. Paulson's role, said the secretary was first alerted to a potential crisis at Bear Stearns Thursday afternoon. Mr. Paulson kept Mr. Bush abreast personally on discussions about the problem, giving him a heads-up Friday morning before the president left for a speech to the Economic Club of New York, that some sort of rescue was imminent, and then speaking to him on Sunday afternoon.
By all accounts the crisis brought Mr. Paulson, Mr. Bernanke and Mr. Geithner into an unusually cooperative working relationship that, the senior official said largely excluded Mr. Bush's team of economic advisers.
Mr. Paulson has been cautious about predicting the future of the markets and the possible necessity of further action to stabilize them. But since the beginning of the market turmoil last August, he has often mentioned that there would be failures of one or more institutions before things got better. Associates say he has taken a pragmatic approach and an attitude that the administration would do what it had to do to stabilize the broader markets.
Mr. Paulson dismissed questions of whether the administration was bailing out a financial giant while homeowners faced foreclosure, noting that Bear Stearns shareholders received only $2 a share for stocks that not long ago had been worth $170.
'This was an easy decision," Mr. Paulson said outside the White House after the president's second meeting with advisers and regulators. "This is the right outcome. And again, in terms of the moral hazard, look at what happened to the Bear Stearns shareholders."
Many Democrats have called on the administration to do more to support legislative initiatives already on the agenda.
Senator Christopher J. Dodd, the Connecticut Democrat who is chairman of the Banking Committee, said on Monday in a conference call from Brussels that Mr. Bernanke and Mr. Paulson now might be more willing to back his plan to let the Federal Housing Administration guarantee mortgages if they have been modified by lenders.
In his remarks at the White House, Mr. Bush suggested he would support additional measures. "We obviously will continue to monitor the situation and when need be, will act decisively, in a way that continues to bring order to the financial markets," he said in the morning meeting.
One prominent Republican, Representative Adam H. Putnam of Florida, chairman of the House Republican Conference, said the administration's response has been proper, balancing the need to react to economic uncertainty without having the government intervene excessively in the market.
"I think they appropriately hugged that line," Mr. Putnam said in a telephone interview.
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Adam Nagourney and Steven R. Weisman contributed reporting from Washington, and Jeff Zeleny from Monaca, Pa.
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