SWNID pledges to vote for the first major-party candidate for President who delivers the following speech (and it doesn't need to be attributed):
My fellow Americans:
Today our country faces its greatest financial crisis since the Great Depression, and it comes in the middle of a presidential campaign. As a candidate in that campaign, I apologize to you, the citizens of this great country, for the way that I have mischaracterized the crisis and underestimated your judgment and wisdom as voters.
I apologize for trying to place blame for this crisis in the hands of a few people. It is not the President’s fault that Wall Street investment banks have come unraveled. Neither is it the fault of a few “fat cats” who acted with exceptional greed. In the last week my opponent and I have adopted rhetoric that sought to appeal to your anger and fear by scapegoating such powerful figures. That was wrong. I was wrong. I am sorry.
I also apologize for suggesting that a new round of government regulation will solve such problems. Today we must admit that government regulations were a part of the problem. I pledge that if you elect me your President, I will work with Congress, the Treasury Department and others to craft legislation and regulations that will protect the freedom of our economy to grow and prosper. But I promise that I will not pretend to have solved the next problem by passing laws to prevent the last one. You wouldn’t trust a doctor who told you that medicine that treats your last sickness will prevent you ever becoming sick again. I don’t think you should trust a politician who says that he or she will pass a law that claims to do the same.
With the help of leading economists, I believe that I have come to a better understanding of our present dilemma. I will not insult your intelligence by suggesting that I expected this crisis, any more than any significant group of economists can claim to have predicted it. And certainly neither my opponent nor his party expected it, either. Yes, many people suggested that there was danger in the credit markets, but such warnings did not and could not anticipate what has happened specifically in the last few weeks. Even the brightest, best informed human beings are bad prognosticators. That includes Presidents and presidential candidates. That’s why there was no proposed legislation that would have kept this mess from happening. No one is that smart about the future.
So, with hindsight, what has led to the financial crisis that we now face? First of all, money has been extremely cheap. Our Federal Reserve, in an effort to buoy our economy through the damage of 9/11 and other difficulties, made the choice to set interest rates lower than they have been at any point in modern history. This move came at a time when global investment funds were many times larger than at any point previously. As a result, billions of dollars were looking for an investment home. With interest rates historically low, it was possible to borrow even more money and loan it out at a higher rate, still very attractive, in the form of home mortgages, making a profit on the difference in interest rates. Any investor worth his salt could see the opportunity, and many did.
That opportunity was in part made possible by a long standing government policy. It has been the goal of both major parties since the Second World War to increase home ownership among our citizens. New laws and regulations have sought to encourage mortgage lending to an ever-wider circle of Americans. Private investors, encouraged by those policies, created mortgage-backed securities to provide money for buying homes. I am pleased to say that even with the profound difficulties that have arisen recently, home ownership in the United States is at a historic high. If it is good for people to own their own home, and for many people it certainly is, then our government has pursued a wise and honorable policy.
What this means is that as it became appealing for investors to enter the mortgage market, they had the strong encouragement of our nation’s laws and regulations, and they had the means. Investment banks, when they bought mortgage-backed securities, were doing what the government encouraged them to do. Let’s be honest here: we all want to live in a country where it’s easy to get a mortgage and buy a home. We have elected governments for generations that supported that goal. Investors have been doing what we wanted them to do. We can hardly blame them.
But when too much economic interest and activity focuses on a particular portion of the economy, bubbles develop. And bubbles inevitably burst. This is not the first bubble to burst in the United States. It is one of many. And it is not the last. Bubbles are the result of human enthusiasm, of the way that we all tend to follow the crowd, and even of human greed, something that affects all of us, not just the wealthy.
That bubble’s burst has been more serious for our economy precisely because of what our government did in response to another economic crisis. A few years ago, the Enron Corporation collapsed when it became clear that it had not placed a proper value for its investments on its books. In response, Congress passed a bill compelling corporations to value their investments at the price for which they could be sold immediately.
That seemed like good sense, like a means to protect Americans from future Enrons. But in the present case, it has made the situation worse. Investments in mortgage-backed securities, which are bundles of mortgages divided among several investors, are presently all but impossible to sell because no one is quite sure how many of the underlying mortgages are in default. Please remember, my fellow Americans, that our housing crisis, though significant, is contained. About 95% of American homeowners are paying their mortgages on time. But the uncertainty of these mortgage-backed securities has meant that their market is illiquid, that is, buyers are not ready to buy them immediately at a reasonable price. Consequently, investment banks holding those securities have been forced to value them at zero because the market for them has temporarily disappeared. The securities are not really worth nothing: the vast majority of mortgages are paying off, and those that aren’t are collateralized by houses and land that have some value even in the very worst of times. In a few months or a couple of years, the value of those securities will be much clearer and much higher than zero. But the rules require that these investment banks take an immediate loss on their books for these illiquid securities.
When a bank has to devalue its assets, it must raise more capital, more investment money, to continue to operate. But because other private investors are similarly affected by the present crisis, there simply isn’t enough capital to manage that. The only private entity that could buy a failing investment bank is another investment bank, and they’re all in the same fix. Only the government has the money to step in at such a time.
This so-called bailout is not a matter of saving rich investors. It is a matter of keeping money, the life-blood of our economy, circulating through the economy. If the major investment banks failed, money to start a business, build a factory, buy a car or home, or go to college would disappear. Businesses would be unable to borrow money to purchase goods to sell. Manufacturers would be unable to borrow money for raw materials and parts. The bailout is not for the investors, many of whom will see only pennies on the dollar for their investments. It is for all of us, to prevent a spiral of financial shut-down that would impoverish every American.
This bailout is not the first in our nation’s history. The first came early. Alexander Hamilton, George Washington’s Treasury Secretary, engineered the first government bailout of the financial system. It’s no accident that we honor those leaders today, as Washington’s picture is on our one-dollar bill and Hamilton’s on the ten. They did the right thing, as did other national leaders in later financial crises.
So I affirm what Secretary Paulson is doing. The Treasury Department has had to act quickly, improvising a solution to a problem with details that no one anticipated. I add that you should understand that the price tag for their proposals seems very high, as high as $900 billion. However, much of that money, perhaps all of it, can be recovered by the government as it sells off the assets that it is acquiring in the deal, assets that, as we noted before, have intrinsic value that the markets will reflect when the crisis has passed. In the end, we may find that Uncle Sam has made a small profit. In any case, all of us will be better off for this action.
So what of the future, and what of my plans as a candidate? I will not give you my program for solving this crisis. By the time I take office, the solution to this crisis had better be well underway, as indeed it appears to be. Solving the investment banking crisis will not be on the agenda by January 2009.
But there will certainly be other economic issues to face. Neither I nor my opponent nor anyone who advises us can possibly predict the precise situation of our economy on inauguration day in January 2009.
But I can offer to you the following principles and observations that will guide the decisions that I make. Many of these do not resemble the things I’ve said over the last few days as I have indulged a politician’s taste for populist red meat. I again apologize for that foolish indulgence as I offer you the following pledges.
First, I promise not to appeal to your greed and envy by promising to raise others’ taxes while lowering yours. You know in your heart that if Bill Gates and Warren Buffet pay higher taxes, it won’t make you one penny better off. No one ever taxed a country into prosperity. Instead, I pledge to look at ways that American tax rates can be adjusted to make us more competitive globally and more prosperous domestically. The fact that our corporate tax rate is second highest in the world does not help us keep jobs in this country. I promise to explore ways to fix that.
Second, I promise not to demonize the corporations that provide needed goods and services to Americans. We cannot ask for more oil and cheaper gas and at the same time blame “big oil,” the very companies that drill for oil and supply our gas, for all our ills. Oil companies are entitled to their profits, and they need them to reinvest in new oil fields. The same can be said for other large corporations, which employ so many of our citizens and supply so much of what makes our lives more comfortable and safe. Rather than demonizing big business, I will encourage ordinary Americans to invest in big business, to become owners of our corporations. Consequently, I will ask Congress to consider legislation allowing Americans to invest a portion of their Social Security contributions in private investment accounts through which they can buy mutual funds that will make them the owners of corporations large and not so large.
Third, I promise not to interfere with the inevitable failure of businesses in this country, even large ones of which we have been justifiably proud. Today some in the American automobile industry are asking for a “bailout” like what the investment banks have received. Let’s note that the investment banks are not being saved. The government is selling them off in an orderly way that maintains the liquidity of our financial system. That’s not what some want for GM, Ford and Chrysler. They want guarantees that those corporations will continue to operate. As President, I won’t give such guarantees. Especially at a time when automotive companies from around the world are investing in new manufacturing plants in the United States, we have no special need for companies with headquarters in Detroit. Our government will support efforts to retrain and relocate displaced workers if such failures happen. But we will not nationalize industries in this country. We’ve seen the miserable results of nationalized industries in Europe’s experiments in the twentieth century.
Fourth, I promise to articulate clearly the relationship between government and business in this country. Government isn’t exactly the problem, but it certainly isn’t the solution either. Governments must provide the rule of law that makes business possible. As business evolves, government must find new ways to encourage transparent, honest dealings between people. But no set of rules can eliminate entirely the human penchant for greed and dishonesty. Citizens who want to buy a home or an investment or even a can of beans bear personal responsibility to check the claims made for their prospective purchase. There’s a reason that we express this with an ancient Latin phrase, caveat emptor, or “let the buyer beware.” It’s a rule of life that’s as older as the Romans.
The present financial crisis is both a failure of regulation and a failure to regulate. Saying that this crisis proves we need more or less regulation is the kind of nonsense you’ve come to expect from politicians.
Fifth, I promise that I will never pretend that as President, I manage the economy. I won’t take credit for economic growth. I won’t claim to have created jobs. The credit for such good news goes to the women and men who raise capital to start businesses, who gain skills to fill jobs, who save money to invest, who use their God-given creativity, imagination, intelligence and ambition to find new ways to fulfill the needs and desires of their fellow humans in this country and around the world.
Likewise, I won’t pretend to bring an end to the inevitable cycles of our economy. Economic ups and downs happen because none of us are wise enough, singly or even collectively, to know every time that we are acting excessively, with bad judgment. Collective over-reaction is what leads to bubbles that burst. The economy will have its ups and downs for as long as it is the consequence of human action.
Consequently, I will never pretend that government by itself can solve what markets cannot. Markets need government, as I noted before, but both markets and government are run by frail humans. Businesspeople and politicians alike have severe limits to their judgment. Worse, they are susceptible to hubris and greed to roughly the same degree. Good government can enforce a degree of honesty, but even the best law cannot foil a determined scoundrel.
These days have been trying ones for those in the business of finance. Consequently, they’ve been trying for all of us. But let’s not exaggerate our situation. Americans at every level of our social structure enjoy greater access to housing, food, clothing, education and medical care than at any time in our nation’s history. Our economy and culture continue to be enriched as new generations of immigrants come to these shores to make better lives for themselves, just did the ancestors of the native born, even “native Americans,” whose ancestors simply made the move earlier than the rest of us. We can say that we are all beneficiaries of a culture, a constitution, a legal system and a business environment that makes it possible for millions to pursue happiness in a context of life and liberty. We can say with confidence that God has blessed America.
And so we ask God to bless America once again.