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Solutions to the Credit Crunch

There are solutions for the credit crunch that too few policymakers are talking about. Here is the list: Short term: Federally insure subprime mortgages, restructure troubled mortgages, extend unemployment insurance benefits, provide funding to state governments for infrastructure. Long term: Limit subprime mortgages or outlaw them, require transparency in all mortgage dealings, pass legislation regulating financial markets to prevent highly leveraged deals, stop predatory lending. So when are we going to see such solutions debated in Congress. Don’t hold your breath. Solutions offered by our federal government so far rescue financial markets but not people. If it weren’t for Gordon Brown of Britain, we would not even be talking about the federal government buying prepared stocks in banks. Buying stocks in banks may be beneficial to the taxpayer, we might even make money on it. Eliot Spitzer was a dynamite Attorney General. He wrote a column in the Washington Post on February 14, 2008 (see http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html in which he said that “In 2003, during the height of the predatory lending crisis, the OCC (office of the Controller of the Currency) [under the direction of President Bush] invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.” The states attempted to stop predatory lending and the Bush administration stopped them. After all, we don’t want states to over regulate. When this sorry tale of taking advantage of the poorest of our citizens is told, the Bush administration will once again be demonstrated to be a disaster. Meanwhile good government groups try to get this administration to focus on people rather than financial markets. It is an uphill battle. We made a choice. We voted for Obama and get a rational, thoughtful, educated politician who believes in federal regulation to deal with this crisis instead of McCain, an emotional, impulsive, politician who believes in less government. But Obama has to deliver and so far when dealing with the financial crisis, he is listening to the same people who created it.

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