Talk about weird. It was as if Wednesday night's Republican presidential debate hosted by Fox News was beamed in from an alternate reality— Earth 2 or something—where the economy is still booming and housing prices are still rocketing higher. Because here on Earth 1, the six-year economic expansion is stumbling thanks to a credit crunch caused by the imploding housing market.
But it was all a nonevent in the debate from Manchester, N.H. Mentions by GOP candidates of "mortgage": zero. Mentions of "subprime": zero. Mentions of "housing": zero. Mentions of "recession": zero. Heck, the only mention of "Federal Reserve" was in a question to Ron Paul about his desire to scrap the central bank. (Democrats offered plenty of ideas at their most recent debate.)
Now to be fair, none of the Fox News guys specifically asked Mitt Romney, Rudy Giuliani, John McCain, or the rest of the White House wannabes about the current credit crunch. But a tax question did come up, and any of these guys could have quickly answered it—"I'm for extending the Bush tax cuts on income and investment. Not doing so would hurt families and throw the economy into a recession"—and then quickly pivoted into a smart riff on the housing crisis, maybe something like this:
But those tax cuts don't expire until 2010, and we have a big problem facing Americans right now. The housing boom has gone bust. Even worse, troubles there appear to be spilling over into the rest of the economy. There seems to be a real possibility we might get a recession before too long, ending the fantastic six-year Bush boom. Here's what we should be doing about it:
One, I agree with the president's targeted plan to use the Federal Housing Administration to help struggling homeowners with good credit refinance their mortgages and keep their houses. And Congress should quickly pass tax relief for homeowners who are able to renegotiate their loans.
Two, I think the Federal Reserve should get moving and cut interest rates. Now I know the Fed is independent—and that's the way it should be. But I'm still a private citizen—at least until January 2009—and it seems to me that we are currently in just the sort of situation that the Fed was designed to deal with: preventing a short-term financial crisis from blowing up into a major economic catastrophe. That's what the Fed did in 1987 and 1997 with the stock market crash and the Asian currency crisis. It worked then. It should work today.
Three, I believe borrowers should be given a simple one-page form that tells them everything they need to know about their mortgage in simple language. The borrower should understand what the financial commitments of the loan are, including the effect of any future interest rate increases. Maybe Warren Buffett could write it.
Four, and by the way, I think extending the Bush tax cuts wouldn't hurt either. Doing so would be a great confidence builder for business and ordinary Americans.
Now some of the more libertarian Republicans out there might object to the part about the FHA. These guys view any government action as an unnecessary bailout. But remember the film It's A Wonderful Life, with Jimmy Stewart? No moviegoer, I would wager, roots for Mr. Potter, the evil banker, who argues that giving a bit of help to beleaguered homeowners would create "a discontented lazy rabble instead of a thrifty working class." Nope, people cheer for mortgage lender George Bailey, who counters: "Just remember this, Mr. Potter, that this rabble you're talking about, they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?" I think most candidates would rather be George Bailey