Carper's Corner
In Adversity Lies Opportunity
November 5, 2009On Monday, November 9, I will be speaking at an economic conference at the University of Delaware. This “sneak-peek” op-ed ran in the Wilmington News Journal on November 1.
Looking back on the Financial Crisis of 2008—the collapses of Bear Stearns, Lehman Brothers, IndyMac, Washington Mutual, Wachovia and the extraordinary interventions in AIG, Fannie Mae and Freddie Mac—our government was put to the test.
The housing bubble, created by lax credit standards and low interest rates, fueled subprime lending in the mortgage market, inflating home values to unsustainable levels. The risky loans given to borrowers with poor credit scores were bundled into securities and sold around the world as safe investments. When the housing bubble burst, it triggered a financial crisis that put Main Street as much at-risk as Wall Street, and nearly crippled the entire global financial system.
Over the last year, bold actions by the Federal Reserve, the Treasury Department, the FDIC, Congress and others within the Administration have enabled our nation to move away from the precipice of a second Great Depression, and put us on the path toward recovery.
After all, it was the Federal Reserve’s intervention in the AIG rescue that played a large role in preventing our economy from collapsing. The Fed and Treasury Department also created a myriad of complementary emergency lending facilities to put liquidity back in our credit markets, enabling banks to continue lending to other banks. Though controversial when enacted by Congress, the TARP program provided much-needed capital to the balance sheets of the largest, at-risk institutions. And, through the enhancement of its deposit insurance program, the FDIC has been able to assure Americans that their hard earned money is safe in federally insured deposit institutions, backed by the full faith and credit of the United States government.
A year later, while better, banks are still not lending as they were before the crisis, mortgage markets have a long way to go until they fully recover, and commercial real estate woes loom ahead.
On the brighter side, although some 100 banks have closed this year, many others are on more solid ground and $70 billion of the TARP funds—with 10 percent interest—has already been repaid to the taxpayer.
Today, as we emerge from the recession of the past 23 months, we must show the American people that recovery is inevitable if we learn from past mistakes.
First up, we need to do what every Congress and President have failed to do for more than 50 years. We need to transform a health care delivery system whose costs continue to rise by several times the rate of inflation, while providing worse outcomes than those found in many other advanced nations. Our current system leaves more than 40 million Americans without health care coverage, and puts American businesses large and small at a competitive disadvantage with
many of our competitors around the world.
Second, we must tackle the threats of climate change and rising sea levels, while we end our dependence on foreign oil, and dramatically reduce air pollution. How? Harness the wind off of our shores and the energy of the sun. Generate more electricity with newly abundant natural gas, while we deploy promising new technologies that enable us to dramatically cut harmful emissions at coal-fired power plants. Design and build more energy-efficient appliances and lighting systems, along with vehicles that burn far less fuel or run on electricity or hydrogen. And, we should introduce a new generation of nuclear power plants that are safer and simpler to operate and whose waste can be reprocessed or recycled.
Third, we need to reform our financial regulatory framework to make sure Main Street is never again threatened by the mistakes of Wall Street. New laws and regulations must provide consumers with robust protections and also help an industry vital to job growth in our state to thrive as risky behavior is reined in and financial weapons of mass destruction are eliminated.
Finally, we’ve got to start reining in federal spending or risk an acceleration in the drop of the dollar’s value that will require the Fed to hike interest rates at a time when historically low rates are helping to lift the housing market and the rest of our economy.
None of the challenges we face are easy to overcome, but if we will remember the words of Einstein who said, “In adversity lies opportunity,” we’ll continue to climb out of the mess we’ve been in and stay out of it for a long time to come.