By Peter G. Gosselin
The Los Angeles Times
Wednesday 22 August 2007
The credit crisis compounds Republicans' political troubles from the Iraq war. It may bolster Democrats' calls for new regulations.
Washington - The credit crisis that has hit home mortgages and shaken worldwide financial markets is turning into a political albatross for President Bush and Republican presidential contenders, piling atop an unpopular war in Iraq and eroding traditional GOP claims of being good stewards of the economy.
And it may be having a more far-reaching effect as well: giving Democrats a powerful argument for passing new financial regulations that the administration desperately wants to avoid.
Democrats say the nation's system of financial safeguards, many of them designed in response to the Great Depression of the 1930s, is inadequate for today's highly deregulated, global economy. Until now, Bush and congressional Republicans had little difficulty deflecting such calls for change.
But the credit upheaval and the shock waves it sent throughout the economy have changed the political climate. In the most recent Gallup poll, taken last week, 72% of Americans said the economy was "getting worse." That was the most pessimistic showing since Gallup began asking the question in the early 1990s and comparable only to the 71% recorded in January 1992, when unhappiness with the economy was credited with helping Bill Clinton win the presidency later that year.
"Even if this doesn't lead to serious instability and a slowdown of the economy, [the credit crisis] reinforces the insecurity, from higher energy prices, higher healthcare costs and pension worries to set a very unfavorable economic environment for the president's party," said Thomas E. Mann, a presidential scholar at the Brookings Institution in Washington.
And Democrats demonstrated Tuesday that they intended to take full advantage of the Republicans' plight.
In the House, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, announced plans for a Sept. 5 hearing on the credit crisis and ticked off an ambitious legislative agenda to address the problems, including expanding the roles of government-sponsored mortgage loan facilitators, Fannie Mae and Freddie Mac, and imposing new rules on companies that issue mortgages and those that package them for sale as securities.
"The financial markets have outgrown the current regulatory system, and we need to do something about it," Frank said.
In the Senate, Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee and a Democratic presidential contender, got Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry M. Paulson Jr. to come to his office and explain what they were doing to ease the credit freeze-up.
Although Dodd generally praised the two officials after the session, he seized the chance to take a rhetorical shot, noting that the administration acknowledges the seriousness of the problem but says no systemic changes are needed.
"You're getting sort of a dual message that it's going to take some time to fix [the problem], but that everything is hunky-dory," Dodd said.
Separately, Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, demanded the resignation of St. Louis Federal Reserve Bank President William Poole for Poole's comment last week that the Fed would only cut rates before its September policymaking meeting in the face of "calamity."
"It was reckless and irresponsible of him to leave people with the impression the Fed would take no action," Conrad said. "He's got to go."
Within days of Poole's comment, the Fed, concluding that the credit freeze-up posed a danger to the economy, cut its largely symbolic discount rate charged to banks and suggested it was ready to cut its much more influential federal funds rate if matters worsened. The federal funds rate is what banks charge one another for short-term loans, and it directly affects other interest rates throughout the economy.
St. Louis Federal Reserve officials said Tuesday that Poole had no response to Conrad's comments.
To some extent, Republicans are hobbled by their own free-market, anti-government-regulation principles, whereas Democrats, who believe that government action can lead to better outcomes, have maneuvering room. That could prove particularly important depending on how the credit crisis plays out in the coming weeks.
Jon McHenry, a partner with the GOP polling firm of Ayres, McHenry & Associates in Alexandria, Va., voiced the view of most Republican politicians and - at least until last week - a substantial number of economic policymakers in saying that the current trouble is largely the product of private borrowers and private lenders who made bad business decisions and should suffer the consequences.
"If you're a free-market Republican, you give people the freedom to make their own mistakes," he said.
But McHenry acknowledged the political bind that creates for the GOP.
"Standing on the sidelines when people think there's a problem that could spread certainly is not a politically comfortable place to be," he said.
The Fed's decision Friday that, private or not, the bad decisions that are freezing credit pose a threat to the economy as a whole have created a dilemma for Republicans about how Washington should respond.
In general, the administration and its supporters have settled on macroeconomic moves such as the idea of an across-the-board Fed rate cut. They oppose more narrowly targeted microeconomic moves favored by the Democrats, such as allowing Fannie Mae and Freddie Mac to buy up more troubled mortgages.
The problem for Republicans is that if the crisis doesn't ease, it will mean that the across-the-board solutions aren't getting sufficient aid to the places where it is most needed. That in turn could provide a strong argument for the kinds of intervention favored by Democrats.
Administration officials "don't think that there's much to do [about the crisis], but that's a conscious choice on their part," Frank said. "They are not going to get in and do anything micro, only macro."
A classic example of the difference between the two parties' approaches is whether to unleash Fannie Mae and Freddie Mac. The two government-created corporations have the power to buy up mortgages and hold them as investments or package them for sale as securities.
The two agencies are deeply unpopular among Republicans, who believe that they falsely convince investors that the full faith and credit of the federal government is behind their securities and, so conservatives think, because they crowd out private companies from the same business.
The Bush administration already has imposed limits on the size of the portfolios the two can have, and the president has said that he would only permit their use in the crisis after they have been "reformed," which would involve sharply curtailing their operations.
Democrats expressed outrage at that position.
A congressional free-for-all could ensue if the crisis continues into the fall and Democrats press to overturn Bush's decision on the mortgage corporations and move to regulate mortgage brokers.
But instead of getting into a fight, GOP pollster McHenry has some advice for members of his party: Shut up.
"There is more trouble for Republicans in talking about the problem than there are benefits," he said. "Let the Democrats offer what they have to offer and let the proposals go along for a while and hope events improve before you have to cast a vote."
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POLL: Consumer Confidence Tanks in Sharpest Drop in 20 Years
By Gary Langer
ABC News
Tuesday 21 August 2007
Decline blamed on stock market fall, gasoline prices, war in Iraq.
Consumer confidence sustained its steepest one-week drop in more than 20 years of ongoing polls this week, falling to its lowest level since the aftermath of Hurricane Katrina in late October 2005.
The ABC News/Washington Post Consumer Comfort Index lost an extraordinary nine points to -20 on its scale of +100 to -100, down from -11 last week, and a summertime high of -5 four weeks ago. Before now, the index never has fallen by more than seven points in a single week in 1,130 weeks of consecutive polling.
The decline is broadly based among population groups, and there seems not to be a single negative event to blame, but a confluence: the stock market's fall, troubled housing and credit markets, the Fed's expressions of concern about an economic downturn, the cumulative effect of high gasoline prices during the summer driving months, and a public broadly dispirited over the course of national events, driven by the unpopular war in Iraq.
Last week's ABC/Post consumer survey hinted at this change. It found a significant increase in pessimism about the economy's future, with 57 percent of Americans saying the economy's getting worse, far above the 26-year average of 39 percent, and the most since post-Katrina October 2005. This week, ratings of current conditions followed.
The drop in confidence, in fact, has been brewing since late July. The CCI reached its summertime high of -5 July 22, then turned down to -8 the next week, and -11 last week. The index is based on a four-week rolling average of 250 weekly interviews; this week, the positive week of July 22 rolled out of the average, and far bleaker views the past week rolled in.
Index- The index is based on Americans' ratings of the national economy, their personal finances, and the buying climate, and all took a hit this week: Just 32 percent say the economy's in good shape, down five points in a week to the fewest since October 2005; 53 percent say their personal finances are OK, down five points to the fewest since October 2004; and 35 percent call it a good time to spend money, matching what it was this past June.
Compared to a month ago, positive ratings of the national economy have taken the biggest fall, down 12 points; positive ratings of personal finance have dropped by six points; positive views of the buying climate, four points.
Trend - Competing positive and negative forces have been pulling at consumer sentiment lately, producing gyrations in the CCI. It reached a better-than-average -3 in early May, fell (amid rising gasoline prices) to -15 a month later, recovered in July, and now has dropped again.
At -20, the index today is well below its 2007 average, -7, and its long-term average of -9, since this weekly poll began in late 1985. This year alone, it's ranged from +2 in March to today's -20, and one of its previous record falls, -7, occurred the week of March 18.
The CCI also fell by seven points in a single week in February 2004, January 2001, and February 1990. Those shared the record for a one-week-drop - until this week.
Groups - As usual, the CCI is higher in better-off groups, but it's declined across the board. It's +35 among higher-income adults (down 12 points from last week), compared with -47 among those with the lowest incomes (down 16 points).
The index is -2 among those who've been to college while -49 among high school dropouts, and -14 among whites, but -38 among blacks. The gap between men and women has been narrower than usual, lately; again, that's so this week, with a CCI of -17 among men, and -21 among women.
Partisan differences remain: The index is +15 among Republicans, -32 among independents and -33 among Democrats. Republicans were one of the few groups that didn't participate in this week's decline in confidence; however, their views, like those of others, have worsened in the past month overall.
Here's a closer look at the three components of the ABC/Post CCI:
National Economy - Thirty-two percent of Americans rate the economy as excellent or good; it was 37 percent last week. The highest was 80 percent on Jan. 16, 2000. The lowest was 7 percent in late 1991 and early 1992.
Personal Finances - Fifty-three percent say their own finances are excellent or good; it was 58 percent last week. The best was 70 percent, last reached in January 2000. The worst was 42 percent on March 14, 1993.
Buying Climate - Thirty-five percent say it's an excellent or good time to buy things; it was 39 percent last week. The best was 57 percent on Jan. 16, 2000. The worst was 20 percent in the fall of 1990.
Methodology - Interviews for the ABC News/Washington Post Consumer Comfort Index are reported in a four-week rolling average. This week's results are based on telephone interviews among a random national sample of 1,000 adults in the four weeks ending Aug. 19, 2007. The results have a three-point error margin. Field work by ICR-International Communications Research of Media, Pa.
The index is derived by subtracting the negative response to each index question from the positive response to that question. The three resulting numbers are added and divided by three. The index can range from +100 (everyone positive on all three measures) to -100 (all negative on all three measures). The survey began in December 1985.
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
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