Barack Obama states during his campaign for president that the United States is “in the worst financial crisis since the Great Depression”



The headlines throughout the world on October 8, 2008:

Tokyo: “Aso likens U.S. ills to ’29 crash.”— The Japan Times Online.

London: “Global markets in turmoil following interest rate cut.”  — The Telegraph.

Berlin — “THE WIDENING CRISIS: Central banks cut interest rates, Britain bails out banks.”— Spiegel Online International.

Paris — “Central banks unleash rate cut offensive against finance turmoil.”— Agence France-Presse.

New York — “Central banks cut rates world-wide in emergency move.”— The Wall Street Journal.

Emergency interest rate cuts

“The Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden’s Riksbank cut interest rates in an emergency coordinated bid to ease the economic effects of the financial crisis,” according to Bloomberg News.

The Dow Jones Industrial Average lost 13 percent in the past five trading days.  In fact, the Dow lost one third of its value this year after ending Tuesday down another 5.1 percent.  The Dow dropped below the 10,000 mark that it first reached in 1999.

Even after the $700 billion bailout rescue plan, the chairman of the U.S. Federal Reserve, Benjamin Bernanke, admitted that the risk has increased for economic troubles.  This is understandable since even the proponents of the bailout have no idea whether it will work as intended.

“We don’t have a choice now of debating whether it is a good or bad thing,” said Rep. Barney Frank (D-Mass.) at the start of the bailout negotiations.

“Three days after the [bailout] plan was approved, it looks like a pebble turned into a churning sea,” wrote Mark Landler, European economic consultant, in the New York Times on Oct. 6, 2008.

Too many loans to persons who could not afford to pay

It is known, however, what caused the need for some kind of government intervention.  Most economists are in agreement that the primary reason for the current financial crisis is that banks made too many loans to persons who could not afford to repay if there was the slightest downturn in asset values.

“The present crisis, which has its roots in the unsupervised expansion of credit in the United States, has spread from subprime mortgages to toxic securities, to the entire global financial system, where it has savaged equities markets and is now threatening to do incalculable damage to the US and European banking systems,” wrote Mike Whitney, financial columnist.

In the presidential debate in Nashville the night before the headlines quoted above, neither Sen. McCain or Sen. Obama appeared to have any real plan for stabilizing the economy.  Consider, for example, the responses of the candidates to the first question of the debate: “With the economy on the downturn and retired and older citizens and workers losing their incomes, what’s the fastest, most positive solution to bail these people out of the economic ruin?”

Sen. Obama’s most substantive response:

I think everybody knows now we are in the worst financial crisis since the Great Depression. . . . Now, step one was a rescue package that was passed last week.  We’ve got to make sure that works properly.  And that means strong oversight, making sure that investors, taxpayers are getting their money back and treated as investors. . . . It means help for homeowners so that they can stay in their homes.  It means that we are helping state and local governments set up road projects and bridge projects that keep people in their jobs.  And then long-term we’ve got to fix our health care system, we’ve got to fix our energy system that is putting such an enormous burden on families. . . .  (Emphasis added.)

Sen. McCain’s most substantive response:

Americans are angry, they’re upset, and they’re a little fearful.  It’s our job to fix the problem.  Now, I have a plan to fix this problem and it has got to do with energy independence.  We’ve got to stop sending $700 billion a year to countries that don’t want us very — like us very much.  We have to keep Americans’ taxes low.  All Americans’ taxes low.  Let’s not raise taxes on anybody today.  We obviously have to stop this spending spree that’s going on in Washington. . . . We’ve got to have a package of reforms and it has got to lead to reform prosperity and peace in the world.  And I think that this problem has become so severe, as you know, that we’re going to have to do something about home values.  You know that home values of retirees continues to decline and people are no longer able to afford their mortgage payments.  As president of the United States, . . . I would order the secretary of the treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes — at the diminished value of those homes and let people be able to make those . . . payments and stay in their homes. . . . [U]ntil we stabilize home values in America, we’re never going to start turnign around and creating jobs and fixing our economy.

Sen. McCain may be right about the need to stabilize home values.  According to the Federal Reserve, housing is one third of all U.S. wealth.  The Federal Reserve reported that during the second quarter of 2008, housing was valued at $19.4 trillion.

Sen. McCain understated the mood of Americans when he stated that Americans are “a little fearful.”  A CNN/Opinion Research Corp. poll conducted during the past week revealed that a majority of Americans “believe that another economic depression is likely” and that the United States will experience a “25 percent unemployment rate, widespread bank failures and millions of Americans homeless and unable to feed their families.”

Sen. Obama’s ideas on tackling the problem are also subject to criticism.

“Obama’s tax and redistribution policies will not resurrect jobs, wages or the price of stocks in American retirement accounts,” wrote Peter Morici, former chief economist of the U.S. International Trade Commission.  “Ordinary Americans who have to earn their livings outside the cosseted confines of Wall Street will not be much better off two years from now. . . . If Obama wants to make Americans better off, he would serve them better by straightening out the banks and taking substantive action on the trade deficit with China.”

Both Sen. McCain and Sen. Obama acknowledged that the financial crisis threatens to ruin America’s image of being a military power.

“There’s no doubt, and history shows us, that nations that are strong militarily over time have to have a strong economy, as well,” Sen. McCain said.  “And that is one of the challenges that America faces.”

“There has never been a nation in the history of the world that saw its economy decline and maintained its military superiority,” Sen. Obama said.

Opposition to the “rescue” plan

America’s primary plan to prevent economic decline is the $700 billion bailout rescue.  But there is significant voter angst over the bailout.  According to a new CNN/Money poll, 40 percent of Americans viewed the plan as an attempt to rescue the overall economy.  However, “53 % saw the bill as mostly a bailout for Wall Street.”

Most Americans are not aware of another government bailout effort that is underway.  Chairman Bernanke recently doubled the so-called Term Auction Facility lending program for banks to $900 billion, which is about the same size as the Fed’s entire balance sheet.  The Fed on Tuesday loaned $138 billion to 71 banks.  The Fed previously loaned $150 billion and plans to lend $150 billion in one-month and three-month loans in six auctions through December.  There is a sense of urgency and desperation as the economy heads toward deeper recession and perhaps depression.

Photo Credit:

Encyclopedia Brittania




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2 Responses to “Barack Obama states during his campaign for president that the United States is “in the worst financial crisis since the Great Depression””

  1. Boggs Says:

    “Most economists are in agreement that the primary reason for the current financial crisis is that banks made too many loans to persons who could not afford to repay if there was the slightest downturn in asset values.”

    So why do the Dems not acknowledge their part in this when they blew off the Bush administrations attempts to more tightly oversee and regulate Fannie Mae and Freddie Mac. Frank, Dodd, Schumer said “there was no problem.” And it was not just confined to just Fannie and Freddie. Way back in the Clinton administration commercial banks were forced and encouraged through the CRA (Community Reinvestment Act) to loan to folks who otherwise would not be able to get a loan under normal circumstances. This did have the intended consequence that more and more people were able to buy homes but, it had the unintended consequence of starting the housing bubble as the eligible pool of buyers increased demand. Then the commercial investment banks stepped in with their mortgage back securities which then spread these bad loans all over the world. And gosh then low and behold when the bubble burst and their assets values dropped those people who should not have gotten loans stopped paying etc etc
    I’m not saying that the Dems caused everything but they sure are holier than thou (i.e. Nancy “one too many face lifts” Pelosi) for a party with just as much dirt on their hands.

  2. jamesedyrn Says:

    Your critique of the Democrats appeared to have some merit until you stooped to name calling. Ms. Pelosi can not help the fact that her looks abandoned her with age. I do agree that Franklin Raines, Fannie Mae’s former CEO, and many others should have been prosecuted, convicted and put in prison.

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