Credit crunch is just the beginning

“You have a real business oriented government...looking like a socialist country now, where all of the financial sector is going to be owned by the state at the rate that we’re going,” said Trillion Dollar Meltdown author Charles Morris.

Morris credits former Chairman of the Federal Reserve Alan Greenspan for much of the recent financial turmoil. In 2000, amid the dot-com bust, the U.S.’s Gross Domestic Product dropped considerably. In response the federal funds rate, the interest that banks are charged, was lowered to the point that it passed the consumer price index.

While the market rapidly picked up in 2002, the Federal Reserve did not adjust the funds to meet inflation over two years. As a result the banks were charged a disproportionately low amount of interest and took advantage of the misstep, essentially treating their loans from the Federal Reserve as free money.

“We have notion that the credit crunch is just the first step,” said Morris.

Paulson asks Senate for keys to economy

In choosing which companies to save in this recent period, "We have acted on a case-by-case basis," but "more is needed," said Treasury Secretary Henry Paulson in a hearing today before the Senate Banking, Housing, and Urban Affairs Committee. Paulson sent a proposal to Congress that would give the Treasury Department $700 billion to buy out and run various companies the government plans to take over due to potential bankruptcy.

Paulson said that the government must "fundamentally and comprehensively address the root cause of this turmoil." That turmoil, he says, is the housing market. He said the housing market is "choking off the flow of credit which is so vitally important to our economy." Chairman of the Federal Reserve System Ben Bernanke echoed the sentiment that our economy will only improve when the housing market improves.

Many senators had similar problems with Paulson's proposal. Sen. Chris Dodd (D-Conn.) said of Paulson's proposal that, "It would do nothing to help even a single family save a home." Senator Chuck Schumer (D-N.Y.) said that any bill would have to account and include the taxpayers, housing market, oversight, and regulation. He used the acronym "THOR" to refer to those four issues. Sen. Chuck Hagel (R-Neb.) said that the proposal must include more accountability and transparency. He also said that Congress must drastically rethink its economic policies for "a 21st century global marketplace." Sen. Michael Enzi (R-Wyo.) said that because the proposed bill would cost each U.S. citizen approximately $2,300, they had to be accounted for.

Housing market hit is worst in years

When the housing market is down, the "whole economy gets hurt," said Rep. Barney Frank (D-Mass.)in a hearing today. The Financial Services Committee met to discuss the problems and possible solutions to the current housing market.

Frank added that the federal government's feelings are not only of sympathy to those in foreclosure. He said that some people have committed to mortgage policies out of their price range.

Rep. Jeb Hensarling (R-Texas) said that the United States needs to "preserve the paycheck" of its homeowners. Hensarling continued by stating that no one would want to be a seller in this market.

Sheila Blair, Chairman of the Federal Deposit Insurance Cooperation, said the current housing market is due to a "complex set of interrelated causes." She said the housing market in the United States had the most severe drop of the past 60 years.

Brian Montgomery, Chairman of the Board of the new "Hope for Homeowners Program," said that the program is slated to be ready to open on Oct. 1 of this year. He said the goals of the program are to help improve homeowners' chances of refinancing their loans, mitigating monetary losses for both buyers and sellers of mortgages, and to reduce the number of foreclosures nationally.

Bush says market will be fine in time

"We're focused on the financial system as a whole," said President Bush in a statement today at the Rose Garden. His statement was in response to a bad weekend on Wall Street which included investment bank Lehman Brothers filing for bankruptcy on Monday and financial firm Merrill Lynch getting bought by Bank of America to save itself from bankruptcy.

He added that the short term adjustments might be painful, but "in the long run, I'm confident our capital markets are flexible and resilient."

Bush said he appreciated the job of the Treasury Department, the Federal Reserve, and the Securities and Exchange Commission. He added that financial institutions in the United States and abroad would allow for "stability in the financial systems."

President Bush said that Americans can be assured that his administration is working hard to solve current "adjustments" in the job markets. He also said that this administration would try to improve "the broader economy."

Treasury Secretary Henry Paulson said that the root of the problem lies in the current housing prices. That, he says, is the reason the administration is adamant about bailing out mortgage lenders Fannie Mae and Freddie Mac.

Paulson added that the American people can be "very confident in the federal banking system." He echoed the president's claim that despite some "rough spots along the road," the US economy is favorable compared to that of any developed country in the world.

Paulson would not speculate as to whether this country's economic problems were the fault of the Bush administration, but Paulson said he was "playing the hand that was dealt me."

Former labor secretary challenges Bush on black families

"The story of the Bush Administration for the past eight years really has been a story of constant economic deterioration in the African-American community,’ said
Former Clinton Labor Secretary Alexis Herman during an Obama campaign telephone conference on the state of economy for African-American Families.
Herman, along with Howard University Economics Department Chair Dr. William Spriggs, expressed dismay with last Friday's unemployment report and described the response an Obama presidency would bring.
"It’s not just about the unemployment rate, the fact of the matter is ,when we look at the job loss matter, we have lost good jobs in our community,’ said Herman”, citing a 10.6 percent unemployment rate and loss of five hundred thousand jobs.
Herman explained that Senator Obama would combat this by raising the minimum wage to $9.50 an hour, end tax breaks to companies that outsource, and create economic incentives for employers who retain domestic jobs.
Spriggs stressed that although the teleconference was focusing on black families, all communities are at risk.
"It is the whole ship that is sinking because we have pursued these policies, believing that the economy can grow from the top down. We won the experiment. We had eight years of it, nothing trickled down."
Spriggs went on to criticize McCain's economic plan, stating that the tax cuts amongst those in the top one percent of the income distribution will cost taxpayers over a trillion dollars within the next 40 years. Conversely, Spriggs said Obama's tax cuts to American families that make under $250,000 will aid the economy by redirecting more resources towards afflicted communities.