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BRUCE MARKS: The fact of the matter is, this thing should be killed. It should not happen at all. It does nothing, Amy, for the homeowners. And what we have to say to Congress, Amy, is we have to say, “It’s the foreclosures, stupid,” just like Bill Clinton said to the first George Bush, “It’s the economy, stupid.” We have to say to this Congress, “It’s the foreclosures, stupid.” And they have to do three things: do a moratorium on foreclosures, stop the interest-rate increases, and restructure loans to make them affordable. That’s it, without one dollar of taxpayer money.
AMY GOODMAN: Joseph Stiglitz, what about what Bruce Marks proposes?
JOSEPH STIGLITZ: Well, I mean, he’s clearly right. This is the point I made before, that we’re having a massive blood transfusion without stopping the hemorrhaging at the bottom. Real estate prices are likely to continue to fall. And we need to do more. This proposal does very little to stem the underlying problem.
I would add to the list a couple things. I would, for instance, convert our current mortgage deduction into a cashable tax credit. The reality—you know, what we do for rich Americans is, in effect, through our tax system, in many states, are paying 50 percent of the housing costs, because the interest in real estate taxes are tax-deductible. For poor Americans, we do nothing, or much less. It’s inequitable. It’s inefficient. And a conversion from this tax deduction to tax credit would allow people to better be able to afford to stay in their homes.
Secondly, we do need a reform bankruptcy law to encourage restructuring of the mortgages. There was predatory lending. And even when it wasn’t predatory lending, the fact is that today a very large fraction of homes have mortgages that are—exceed the value of the house. The banks ought to recognize the loss, just write down the value of the mortgage to, say, 90 or 80 percent of the value of the property.
And finally, I think it may be desirable to have a government mortgage program taking advantage of our lower—government’s lower cost of capital, a better ability to collect, passing on some of those lower interest to homeowners. I don’t think it does any good to have these people evicted from their homes. So, that would allow people to have lower mortgage costs, allow them to stay in their homes, convert them—perhaps the non-recourse loans to a recourse loan, but only do it if there is this reduction in the value of the mortgage, so that the lenders take a haircut on those mortgages.
JUAN GONZALEZ: Yeah, I’d like to ask you, the impact, in two ways, of this enormous additional debt that the government is taking on: one, in terms of how this will affect the ability of the new president to implement whatever programs he is hoping to implement, and two, how it’s affecting the standing of—the financial standing of the United States in the world, in terms of its relative influence vis-a-vis other countries and governments, in essence, and banks in other countries that are now helping the United States get through this crisis?
JOSEPH STIGLITZ: Well, first, let me make an observation, that it wasn’t very long ago that the President vetoed a bill to provide healthcare, health insurance, to poor American children who otherwise would not get healthcare. Without that healthcare, they could be scarred for life. And he said—and this is a bill that costs a few billion a year—he said we could not afford it. We didn’t have the money. All the sudden, we found this $700 billion to help Wall Street. And that sort of shows you a sense of priorities, a sense of proportion.
The fact is that Americans are not saving. Household saving has been close to zero; some quarters, it’s been negative. One of the problems with the Bush administration is that it thinks that tax cuts are a solution to every problem, and the February stimulus package focused on encouraging even more consumption through the tax cut. So, what does that mean? That means to finance this money, we’re going to have to borrow money. But where are we going to borrow it from? America is not saving. So, most of this money, or at least a significant fraction, is going to come from abroad. And that means we are going to be more indebted to China and to other countries. Our living standards in the future are going to be lower. We’re going to be sending checks on interest, and banks will repay it, on principle, abroad, money that could have gone into improving our standard of living, a whole set—you know, education, technology, infrastructure, to make our economy more competitive.
The basic lesson of economics is there’s no such thing as a free lunch, and there’s no such thing as a free war, and there’s no such thing as a free bailout. Our resources are scarce, and we’re going to have to give up something. And the amount that we have to give up will depend, in the long run, on how well we protect taxpayers in this bailout. And that’s one of the main criticisms of the Paulson plan. It’s not as well designed as it should be to protect American taxpayers.
AMY GOODMAN: Finally, Joseph Stiglitz, you’re co-author of The Three Trillion Dollar War: The True Cost of the Iraq Conflict. How does the bailout connect to war?
JOSEPH STIGLITZ: Very much. Let me first explain a little bit how the current crisis connects with the war. One of the reasons that we have this crisis is that the Fed flooded the economy with liquidity and had lax regulations. Part of that was this ideology of regulations were bad, but part of the reason was that the economy was weak. And one of the reasons the economy was weak was oil prices were soaring, and part of the reason oil prices were soaring is the Iraq war. When we went to war in 2003, before we went, prices were $23 a barrel. Futures markets thought they would remain at that level. They anticipated the increase in demand, but they thought there would be a concomitant increase in supply from the low-cost providers, mainly in the Middle East. The war changed that equation, and we know what happened to the oil prices.
Well, why is that important? Well, we were spending—Americans were spending hundreds of millions—billions of dollars to buy—more, to buy imported oil. Normally, that would have had a very negative effect on our economy; we would have had a slowdown. Some people have said, you know, it’s a mystery why we aren’t having that slowdown; we repealed the laws of economics. Whenever anybody says that, you ought to be suspect.
It was actually very simple. The Fed engineered a bubble, a housing bubble to replace the tech bubble that it had engineered in the ’90s. The housing bubble facilitated people taking money out of their mortgages; in one year—out of their houses; in one year, there were more than $900 billion of mortgage equity withdrawals. And so, we had a consumption boom that was so strong that even though we were spending so much money abroad, we could keep the economy going. But it was so shortsighted. And it was so clear that we were living on borrowed money and borrowed time. And it was just a matter of time before, you know, the whole thing would start to unravel.
AMY GOODMAN: Joseph Stiglitz, I want to thank you for being with us, speaking to us from Austria, winner of the 2001 Nobel Prize for Economics, professor at Columbia University, former chief economist at the World Bank, co-author with Linda Bilmes of The Three Trillion Dollar War: The True Cost of the Iraq Conflict.
Source: http://www.democracynow.org/
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