Backtalk
Will President Obama Turn
Recession Into Depression?
COMMENTARY
A
S OUR GOVERNMENT MOVES TO SPEND Washington simply
trillions, taking the unprecedented step of sat by and watched as
nationalizing the country’s consumer debt, a cascade of economic
it shouldn’t be lost on us that this crisis didn’t need events threatened to
to happen. throw the economy
What could have been a mild recession, isolated back 30 years.
largely in the housing and fi nancial sectors of the When the fi rst
economy, has morphed into a full-blown economic warning signs of the
tsunami. And President-elect Obama, who says he liquidity crisis hit in
is modeling himself after Franklin Roosevelt, may the summer of 2007, they should have taken steps
follow in FDR’s exact footsteps and to encourage people to buy homes again, since
turn a recession into a decade-long prices had readjusted lower by then.
Great Depression. Washington had many weapons at its disposal to
But it all didn’t have to happen this make that happen, such as offering a $25,000 tax
way. Really. These so-called “bailouts” credit to anyone who bought a home (not just new
— now totaling about $2 trillion — are home buyers), and increasing the deductibility of
nothing more than wholesale transfers mortgage interest, say, giving taxpayers a deduction
of nearly worthless debt paper onto the of $1.50 for every dollar on their mortgage interest.
shoulders of the taxpayers. Those who sold their homes for a loss could have
CHRISTOPHER
You and I will be paying off these been given additional tax credits or the ability to
RUDDY
bad debts for another generation, accelerate their losses against income.
EDITOR IN CHIEF
though we never borrowed it and Perhaps most importantly, sensible regulations
we never lent it. To understand our should have been put on the table. Knowing that
predicament, it is important to grasp what led us to the housing bust was fueled by adjustable rate
this crisis. mortgages, they should have been banned.
Beginning in 2001, artifi cially low interest rates Congress also should have moved to have our
pressed by Alan Greenspan spurred the largest asset banking institutions regulate the manner in which
bubble in history — the housing boom. they collateralize and package debt. For example,
In 2004, when the Federal Reserve raised rates the Democratic Congress passed a $150 billion
some 400 percent in the course of 18 months, the stimulus program this year, handing out checks up
housing market simply imploded. The dominoes to $600 to qualifi ed taxpayers. It didn’t work.
began falling: Mortgage paper devalued quickly. Instead, Congress should have been lowering
Wall Street banks that had leveraged this paper taxes across the board, giving new incentives to
for huge fi nancial gains suddenly found they were investors to place capital in small business, and
sitting on mountains of nearly worthless paper. cutting corporate taxes. As for Obama’s “change”
The effort under way now for the taxpayer to program, he is talking about even more “stimulus”
assume all of this toxic paper is not a cure for the — spending as much as $700 billion. Like FDR,
problem, just a fi x of a symptom. We have known Obama says he will increase employment with
for the past year and a half that falling home prices massive public works projects. But such projects
are the root cause of our current economic woes. never cured the Great Depression.
Policymakers have done close to nothing to solve In fact, there is a strong argument that such
the underlying problem, however. They could do so moves lengthened the Depression by keeping
AP IMAGES
by encouraging people to buy homes, which in turn precious economic resources in the public sector,
would stabilize the housing market. instead of pushing them through the private sector
Instead, policymakers at the Fed and in to increase overall economic growth. DEPRESSION/
82 NEWSMAX MAXLIFE / JANUARY 2009
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