Dennis Lucey

Paulson Defends Fed Backstop

In response to Paulson's boast that the Bush administration will do "what it takes" to return stability to financial markets and the economy, Schumer derided Paulson and Bush, claiming their "hands-off attitude is reminiscent of Herbert Hoover" during the Depression.


Wow. Where to begin?

(1) Let us re-debunk the myth that Hoover sat idly during his administration. A noted opponent of laissez-faire, Hoover oversaw the nation's first unemployment assistance, increased public works spending in the face of economic slowdown, established the Federal Home Loan Bank to bring the dream of homeownership to people who couldn't afford it (sound familiar?), raised trade tariffs and created a worldwide trade war by signing the Smoot-Hawley Act into law, and raised income, estate, and corporate taxes. This is the kind of record that would make Keynes smile. If only Hoover had indeed done nothing!

(2) How has the Bush administration been "hands-off"? By offering to freeze foreclosing on ARMs? By offering to write $300-$1200 checks to Americans? By overseeing dramatic cuts in the Federal Funds rate? By instituting programs like the TAF and the TSLF?

(3) Schumer's statement implies that he's in favor of a hands-on solution? What would that entail? Government assumption of all MBS tendered to it? Greater government spending, just to stabilize the economy while we sort out this mess. (Of course, they'll cut spending once the economy stabilizes, right?) Keep defaulting borrowers in their homes by eliminating foreclosure?

Is Hoover regarded as "hands-off" because his actions didn't work? If so, do Schumer or Paulson feel they can successfully be hands-on?