Hillary Clinton on Monday called on President George W. Bush to set up an emergency group to stem the tide of home foreclosures that would include Alan Greenspan, former chairman of the Federal Reserve, and Robert Rubin, former US Treasury secretary.
The Democratic party’s presidential contender said Mr Bush should also provide $30bn (€19bn, £15bn) in aid to homeowners facing imminent repossession, which would match the sum provided by the Fed last week to Bear Stearns, the troubled investment bank. Almost 9m Americans now have negative equity, which means their mortgages are larger than the value of their homes.
“Over the past week we have seen unprecedented action to maintain confidence in our credit markets and head off a crisis for Wall Street banks,” Mrs Clinton said in Pennsylvania, which holds a critical primary election next month. “It is time now for equally aggressive action to help families avoid foreclosure.”
Some economists said they were puzzled by Mrs Clinton’s choice of Mr Greenspan for the emergency body – which would also include Paul Volcker, another former Fed chairman, and recommend action within three weeks.
Many have accused Mr Greenspan of stoking the housing bubble by allegedly keeping interest rates too low for too long, and claim that he failed when chairman of the Fed to address the subprime mortgage crisis by using tougher measures to regulate lenders. Mr Greenspan, who stepped down two years ago, has also been attacked for having played down the size of the housing bubble.
“What next? Eliot Spitzer in charge of an abstinence programme?” said Jared Bernstein, a senior economist at the Economic Policy Institute, a liberal think-tank in Washington. “Alan Greenspan is a deeply skilled economist but his fingerprints are all over this housing bubble. It is a very puzzling choice.”
Some also criticised Mrs Clinton’s naming of Mr Rubin, the chairman of the executive committee of Citigroup, who recently raised eyebrows when he admitted that he had no familiarity until last summer with collateralised debt obligations – securities backed by pools of assets, such as mortgages. Failing CDOs are at the heart of the unfolding crisis.
“These are eccentric choices to say the least,” said a Democratic economist.
The three are nonetheless some of the most respected veteran economic policymakers, and Mrs Clinton’s speech – which also called on Washington to guarantee restructured mortgages and then auction them off in order to slow down the rate of home repossessions – is unlikely to damage her standing with voters, who rate the economy as their chief concern.
“Most voters aren’t going to pay any attention to these criticisms of Greenspan,” said Bob Shrum, a veteran of Democratic campaigns. “What people in Pennsylvania will pick up is that she gave a speech that focused on helping the victims of the subprime crisis.”
Barack Obama, who is trailing in the Pennsylvania polls, said Mrs Clinton’s plan lacked credibility, since she had received campaign donations from lobbyists connected to the financial sector.
Mrs Clinton is on track to win Pennsylvania. But pundits dismiss her chances of overtaking Mr Obama in the popular vote by the end of the primary season in June.
