When I was young, I learned a few simple economic principles: you can’t consume more than you produce, and if you spend more than you earn, sooner or later you go broke.
Recent policies—which disregarded these two simple rules—laid the groundwork for this crisis. During the current administration, the gap between the rich and the poor has been increasing at an alarming rate. Last year the CEO of the financial firm Lehman Brothers made $45 million—that is around $17,000 an hour! To put it in perspective, a person earning minimum wage makes $13,000 per year.
Our leaders not only told us to spend, spend, spend after 9/11, but pushed for “trickle down” tax policies catering to the super wealthy and international corporations. Most importantly, policymakers pressed for the deregulation of Wall Street, allowing the financial sector to succumb to rampant greed and invest heavily in risky mortgage debt to then sell as “derivatives”—prices based on the price of something else.
Our economic system became a financial house of cards. It is hard to imagine buying and selling debt and prices, but it is also hard to imagine that our policymakers would favor finance over production.
When housing prices increased a few years ago, everyone started buying homes as investments, thinking that home prices would always go up. Eventually many houses were being built, people assumed they would receive high returns, and many mortgage firms gave loans to risky borrowers considered “subprime,” or less than ideal.
As low-introductory rates on mortgages expired, some families were not prepared to pay the regular, adjusted interest rate, began missing payments and, for some, went into foreclosure.
Foreclosures rose, housing supply increased, demand fell. Along with demand, prices collapsed. As the housing market plummeted, housing debt went sour too, and the financial house of cards went down.
When house prices fell, inflation of the dollar took off and gas prices skyrocketed. The stock market plunged, credit dried up, people stopped buying, and many lost their life savings. Just think of what would have happened if we had privatized Social Security.
Right now the financial crisis is changing and spreading so quickly, it is very difficult for anyone to know how to proceed. The government has already taken a number of actions, but we have far to go.
I voted twice against the Wall Street bailout because I believe investments—especially those worth $700 billion—should not be haphazardly put together, lack oversight, and give unprecedented power to one person, Treasury Secretary Henry Paulson. I also felt Congress authorizing such a large amount of money for Wall Street might hinder the new administration’s ability to push a large stimulus package, getting much-needed money into the hands of people on Main Street.
I voted in favor of legislation to grant emergency short-term aid to the American auto industry because the recent bill was carefully considered and included protections not present in the financial bailout. The $14 billion in federal loans would have included strict government oversight, limits on executive compensation, hard deadlines for submission of company viability plans and provisions requiring early loan repayment if the Big Three do not adequately restructure their companies.
Regardless of the future of the auto bailout, there is a strong feeling that we have to do something for all Americans in the form of another stimulus package. It will push for economic recovery and job creation while cutting taxes, investing in a cleaner energy future, supporting healthcare for struggling families and rebuilding schools, roads and bridges. With the current state budget shortfalls the country is facing, this investment is even more important.
My legislation to fix America’s crumbling public schools might be included in the stimulus package because not only will it create jobs and encourage energy efficiency, but because I believe investing in the education of our children is the best and most rewarding kind of economic stimulus.
President-elect Obama looks like he is choosing a great team to help him lead in the White House, but we cannot assume a new president will fix everything. We have a long, hard road ahead of us and much work left to be done. In this time of crisis, I hope that partisanship will be pushed aside and Congress and the executive branch will work together, both now and in the new year.
It took us a long time to get here and will take us a long time to get out, but I am confident America will rebound.
