Obama gave an historic speech on the economy today in which he answered some of the criticisms leveled by one of his most vocal critics: Paul Krugman. The speech was well attended. Paul Volker, former chairman of the Federal Reserve under Democratic and Republican administrations - and an Obama supporter - was in attendance, as was Secretary of the Treasury Henry Paulson. Obama was introduced by Mayor Bloomberg.
Obama, the first Illinois presidential aspirant since Lincoln to speak at Cooper Union, began by citing Alexander Hamilton, the nation's first secretary of the Treasury.
Human enterprise may be stimulated by prudent aids and encouragements on the part of the government.
Obama then went on to call for regulation of the brokerage firms that have come to constitute a kind of shadow banking industry by saying:
We need to regulate institutions for what they do, not what they are
More below
In a recent New York Times op-ed piece, Krugman recently criticized both Obama and Clinton for failing to call for explicit reforms of the mortgage industry. Krugman declared:
Last week Robert Rubin, the former Treasury secretary, declared that Mr. [Barney] Frank is right about the need for expanded regulation. Mr. Rubin put it clearly: If Wall Street companies can count on being rescued like banks, then they need to be regulated like banks.
But will that logic prevail politically?
I appreciate this question coming from Krugman who, I believe, is one of the left's most valuable assets. I know that Mr. Krugman criticized Obama supporters as 'cultlike' in a recent column. As an Obama supporter, I don't agree with this characterization of all of Mr. Obama's supporters (though it may aptly describe some), anymore than I agree with the notion, advanced by some supporters of Mr. Obama, that Mr. Krugman is a 'hack' for being critical of Obama and some of Mr. Obama's supporters. Unlike many in the media, Mr. Krugman has not abandoned his role as watchdog, and is, I think, rightly suspicious of politicians who are campaigning in part due to contributions from Wall St. Mr. Krugman is, I think, one of our finest citizens.
I'm pleased that Obama, another of our finest citizens, has answered Mr. Krugman's call for regulation in his speech today. Obama criticized Mr. Bush's fiscal policies, specifically his support of permanent tax cuts for the wealthy, and his propensity to borrow from the Chinese in support of those tax cuts and other fiscially irresponsible initiatives. Obama also went on to criticize a culture of deregulation on Wall St., saying that the economy was "bound to" suffer a correction. He won applause when he noted that the "pain has trickled up".
Obama also said: "We need to create a 21st century regulatory framework, and a bold opportunity agenda for the American people."
To that end, Obama has sponsored legislation introduced by Senator Chris Dodd and Representative Barney Frank creating a new FHA housing security program, which will create incentives for lenders to buy or refinance existing mortgages.
This legislation provides an incentive for lenders to reduce principal in exchange for relieving the debt burden on borrowers. You can read more about it here at Bloomberg.
Senator Obama has also called for a $10 billion dollar foreclosure prevention fund to help families that are victims of mortgage fraud, and an amendment to bankruptcy laws that allows the terms of predatory mortgages to be revised.
In addition to sponsoring legislation that Mr. Krugman has approvingly cited in his editorials, Obama also called for an explicit regulatory framework guided by core regulatory principals. In his speech today, Mr. Obama stated:
If you can borrow from the government, you should be subject to government oversight and supervision. The Federal Reserve should have basic supervisory authority over any institution to which it may make credit available as a lender of last resort. When the Fed steps in, it is providing an insurance policy, underwritten by the American taxpayer. (emphasis mine)
Mere rhetoric? I think not. I'm hardly an expert on the economy, but it's heartening to hear a future president declare that the government is the steward of the common good; and that institution requiring government help should be subject to government regulation. If businesses do business with the government, they're doing business with you and me, and therefore ought to be regulated by taxpayers.
While I'm not sure if these proposals will satisfy Krugman's call for further regulation, I'm curious to see what Mr. Krugman's response will be. Hopefully, he'll tell us what he thinks of Mr. Obama's and Mrs. Clinton's speech this Friday.
Update
Thanks for the kind words everybody! You can watch the speech here.
Update
You can read the speech here. Thanks to chrischen for posting the link.
Update
Here's the video: