TANNERSVILLE, PENNSYLVANIA – The following is a partial transcript of a brief conversation on the American economy between independent presidential candidate Quay Fortuna and a reporter from a regional travel magazine that took place on March 25, 2008.
Question: You’re running for president?
Fortuna: Yes, that’s right.
Q: What are you doing here then?
F: Good question. There’s a primary coming up here in Pennsylvania, of course, but since I’m not running as a Democrat or a Republican, that’s not really a reason for me to be here. To tell you the truth, while the Democrats are still shooting at themselves, it’s hard to get any attention at all, so I’ve been laying low. I’m really just here to get a little last minute skiing in.
Q. I take it you are against the war in Iraq. Do you think the war is the cause of our current economic downturn?
F: I think it’s obvious that it’s one of the causes. When you look at just oil prices, for example, they were staying pretty low after we invaded Afghanistan. They were around $17 a barrel immediately after the invasion began, and they settled around the mid-twenties. Then we invaded Iraq in March 2003, and by January 2004, when it looked like things weren’t going so well, we were up in the thirties. By the time of ‘bloody Fallujah’ in 2005, prices had climbed to the fifties.
Now, it’s not all about the disruption in the Iraqi oil supply – in fact, it’s not all about supply – but the instability of Iraq, a newly-empowered Iran, the re-emergence of Iranian-backed Hezbollah in the summer of 2006, all of these things certainly wreaked havoc on the confidence of commodity traders. And currently, of course, we’re up around $100 a barrel, on the back of rising demand in China and India. So, some experts have been saying that about $35 a barrel of that price hike from 2003 to the present is due directly to the impact of the Iraq war. And that’s hitting us where we live.
Q: You can’t blame the war for the sub-prime crisis, though, can you?
F: Actually, yes, it’s related. And you don’t have to take my word for it. A Nobel Prize-winning economist named Joseph Stiglitz has drawn a very distinct connection between the two. He points out that funding a $3 trillion war over the past five years has created a massive financial drain on the economy, which caused the Federal Reserve, early on – beginning with Greenspan even – to ease the availability of credit by lowering interest rates. I think, and the way Stiglitz says it, the Fed encouraged lenders to give loans to “anybody this side of a life support system.” So the usual credit standards fell by the wayside – and why not? There was so much money to be made through lending, and a market developed around it. And it seemed to make sense at the time to essentially invest all these dollars in real estate, since real estate, so we all thought, doesn’t ever decline in value. So this, of course, led to real estate speculation and a boom in housing prices, and also an overall consumption boom. But it was all pretty artificial, because at the same time, as a nation we were borrowing money from China like it was going out of style to fund the war.
Q: But the sub-prime crisis was caused by banks and their predatory lending practices.
F: Certainly some low-life lenders were guilty of entrapping unsophisticated borrowers and just basically killing them with impossible interest rate hikes, and they should be prosecuted and hung out to dry for it – but that wasn’t the cause of the sub-prime crisis. The cause was a relaxation of lending standards that flowed from the “free money” environment created by the Fed, compounded by the de-localization of mortgage activity – the fact that mortgage portfolios became the subject of speculation that could be bought and sold to investment banks on Wall Street meant that lenders who wrote “iffy” mortgages no longer felt any responsibility for whether they were good or bad. There are plenty of people who borrowed money who shouldn’t have been permitted to do so, and the result is that loans are going bad, buyers of loan portfolios are stuck with a lot of bad paper, margin loans get called, and then you get Bear Stearns going down the tubes.
Q: You sound like you support the government bailing out big Wall Street banks. What about all the homeowners who are losing their homes?
F: Wait, those are two different questions there. And they’re not at all simple ones. I think the Fed did a good deed by extending credit to J.P. Morgan in order to buy Bear Stearns – but that was ultimately all about J.P. Morgan making a shrewd business decision to buy a fundamentally good investment house, a good franchise, that had badly overextended itself. Not everyone should be so lucky. And I think that Wall Street learned a valuable lesson from the sub-prime crisis – you’ve got to hold the mortgage banks accountable for what they do when you transact business with them in this way.
With regard to homeowners – not being able to pay the mortgage has a lot of causes in this country these days … it’s not just about patently unsustainable teaser rates, but about the lack of decent jobs, spiraling fuel costs, jittery banks …
As I said before, the first, most important, most fundamental thing that needs to happen in order to improve some of these things is for the U.S. to stop draining the American economy by spending $50 billion that we don’t have every three months to support a war in Iraq.
Next, while the Fed is going out of its way to make money available through lower interest rates – which is the right approach, despite the fact that lower interest rates created the boom and bust, because the worst thing you could do now would be to fold up the tent – but, unfortunately there aren’t enough community-oriented banks, down close in the trenches, to facilitate the kinds of curative refinancings that need to take place to keep marginal homeowners in their homes. The knee-jerk reaction of most commercial banks is to toughen lending standards to the point where they’re practically impossible.
There needs to be a happy medium. What we need to do ultimately is to stimulate a return of genuine community lending in this country, in which local banks loan money to local people, keep the paper locally, and exercise a sense of community stewardship, so that they can, in effect, manage their customers through the rough patches. We need banks that are like the ones our grandparents did business with. And I don’t want to over-regulate and force commercial banks to become good community citizens; I want to encourage good community citizenship from existing banks through a variety of incentives.
And that’s not just a matter of keeping people in their homes, but in the longer term it is about keeping the fabric of our communities knitted together, to solve the problem of the chronically “unbanked” in this country, and to encourage local, sustainable economic activity.
Q: What do you think of President Bush’s stimulus package?
F: It’s a little bit silly, really. $1200 per working couple. That’s barely a mortgage payment for some people. My biggest problem with it, though, is that there is no guarantee that the money circulates in the way that the government wants it to circulate. $1200 that quickly goes to an electronics manufacturer in Korea or to oil producers in the Middle East, means that the hoped-for stimulation within our own economy comes to an all-too-abrupt end. If it’s going to have any meaningful impact at all, it has to keep circulating within our own economy.
My own proposal would be to give the $1200 in scrip, almost like a separate form of currency, that can only be monetized in actual dollars under certain circumstances – if it is deposited irrevocably into a six-month savings vehicle of some kind, for example, to encourage savings. Or, ultimately, if it is spent and not saved, it can be monetized only by an American depositor at some point during the chain of potential exchanges — and wherever it goes, its use and exchange is tax-exempt until some date in the future. The idea would be to encourage the circulation of the scrip within domestic channels, creating sustainable exchange activities that keep community economies humming – but under no circumstances would the scrip have any value through foreign exchange. It would not come to rest until it does so in American hands, within an American account. If you did something like that, then perhaps $1200 per couple would begin to have a significant impact on the economy.
Q: What about regulation? Would you suggest restricting the activities of banks in light of the subprime crisis?
F: Well, as I said, I believe that Wall Street has learned a lesson about buying mortgage portfolios, and that they will develop new customs and practices to avoid the kind of crisis that Bear Stearns just suffered in the future. The low-lifes will have to find something else to sell to Wall Street.
As to the behavior of those low-life mortgage lenders, I believe that they represent a classic example of the many ways in which corporate America takes advantage of lax federal regulatory oversight to gouge hard-working families in this country. It’s not just low teaser rates with hidden interest rate bumps – it’s also about excessive ATM fees and inexplicable charges on your checking account statement, cell-phone contracts that have hidden charges and no ability to terminate, hidden fees in your cable bill and your utility bills, extortionate penalties for missing a payment by one day, and so on and so forth. “You, too, can get the Internet for only $19.99 per month,” the ads will say, but you’d better check the fine print. The average person ultimately has no idea what anything costs anymore, because corporations have developed hundreds of ways of masking the ways in which they can charge you.
So-called free market exponents, like the guys over at the American Enterprise Institute, argue that regulation of these activities is fundamentally anti-capitalist. Free market capitalism only works the way it’s supposed to, however, when there is a good flow of information. The “invisible hand” that Adam Smith told us all about – that force by which, if each consumer is allowed to freely choose what to buy and each producer is allowed to choose freely what to sell and how to produce it, the market will settle on prices that are beneficial to the all individual members of a community – is really impossible when you don’t give the consumer a full of set of cards to play with. The sub-prime crisis and the damage it has done to certain sectors of our economy is only one example of how the “invisible hand” has been tied up by the lack of disclosure regulation, by the lack of consumer protection regulation. So, in order to restore free market capitalism to its optimum strength, we need to reactivate the Federal Trade Commission and level the playing field again between consumers, on the one hand, and corporations, on the other.
Q: How is the skiing at Camelback?
F: Not so hot.