Verbatim: Bush On The Economic Challenges And America’s Record Of Resilience

By PRESIDENT GEORGE W. BUSH | Posted Friday, March 14, 2008 4:30 PM PT

Following are excerpts from President Bush’s speech made Friday at the Economic Club of New York.

This is not the first time since I’ve been president that we have faced economic challenges. We inherited a recession. And there were the attacks of September the 11th, 2001, which many of you saw firsthand, and you know full well how that affected our economy.

Then we had corporate scandals. And I made the difficult decisions to confront the terrorists and extremists on two major fronts, Afghanistan and Iraq. We had devastating natural disasters. And the interesting thing, every time, is this economy has bounced back better and stronger than before.

So I’m coming to you as an optimistic fellow. I’ve seen what happens when America deals with difficulty. I believe that we’re a resilient economy, and I believe that the ingenuity and resolve of the American people is what helps us deal with these issues. And it’s going to happen again.

Our job in Washington is to foster enterprise and ingenuity so we can ensure our economy is flexible enough to adjust to adversity and strong enough to attract capital. And the challenge is not to do anything foolish in the meantime. In the long run, I’m confident that our economy will continue to grow, because the foundation is solid.

Unemployment is low at 4.8%. Wages have risen, productivity has been strong. Exports are at an all-time high, and the federal deficit as a percentage of our total economy is well below the historic average. But these are tough times. Growth fell to 0.6% in the fourth quarter of last year. It’s clearly slow. The economy shed more than 80,000 jobs in two months. Prices are up at the gas pump and in the supermarket. Housing values are down. Hardworking Americans are concerned about their families, and they’re concerned about making their bills.

Fortunately, we recognized the slowdown early and took action. And it was decisive action, in the form of policies that will spur growth.

This package is temporary, and it has two key elements. First, the growth package provides incentives for businesses to make investments in new equipment this year. As more businesses take advantage, investment will pick up, and then job creation will follow. The purpose was to stimulate investment. And the signal is clear — once I signed the bill, the signal to folks in businesses large and small know that there’s some certainty in the tax code for the remainder of this year.

Secondly, the package will provide tax rebates to more than 130 million households. And the purpose is to boost consumer spending. The purpose is to try to offset the loss of wealth if the value of your home has gone down. The purpose is to buoy the consumer.

* * * *

The Federal Reserve has taken action to bolster the economy. I respect Ben Bernanke. I think he’s doing a good job under tough circumstances. The Fed has cut interest rates several times.

This week the Fed also announced a major move to ease stress in the credit markets by adding liquidity. It was strong action by the Fed, and they did so because some financial institutions that borrowed money to buy securities in the housing industry must now repair their balance sheets before they can make further loans. The housing issue has dried up some of the sources of credit that businesses need in our economy to help it grow.

This morning the Federal Reserve, with support of the Treasury Department, took additional actions to mitigate disruptions to our financial markets. Today’s events are fast-moving, but the chairman of the Federal Reserve and the secretary of the Treasury are on top of them, and will take the appropriate steps to promote stability in our markets.

Now, a root cause of the economic slowdown has been the downturn in the housing market. After years of steady increases, home values in some parts of the country have declined. At the same time, many homeowners with adjustable rate mortgages have seen their monthly payments increase faster than their ability to pay. As a result, a growing number of people are facing the prospect of foreclosure.

Foreclosure places a terrible burden on our families. Foreclosure disrupts communities. And so the question is, what do you do about it in a way that allows the market to work, and at the same time helps people?

The temptation is for people, in their attempt to limit the number of foreclosures, to put bad law in place. And so I want to talk about some of that. First of all, the temptation of Washington is to say that anything short of a massive government intervention in the housing market amounts to inaction. I strongly disagree with that sentiment.

I believe there ought to be action, but I’m deeply concerned about law and regulation that will make it harder for the markets to recover — and when they recover, make it harder for this economy to be robust. And so we must be careful and mindful that any time the government intervenes in the market, it must do so with clear purpose and great care. Government actions have far-reaching and unintended consequences.

I want to talk to you about a couple of ideas that I strongly reject. First, one bill in Congress would provide $4 billion for state and local governments to buy up abandoned and foreclosed homes. I guess this sounds like a good idea to some, but if your goal is to help Americans keep their homes, it doesn’t make any sense to spend billions of dollars buying up homes that are already empty.

As a matter of fact, when you buy up empty homes you’re only helping the lenders, or the speculators. The purpose of government ought to be to help the individuals, not those who speculated in homes. This bill sends the wrong signal to the market.

Second, some have suggested we change the bankruptcy courts, the bankruptcy code, to give bankruptcy judges the authority to reduce mortgage debts by judicial decree. I think that sends the wrong message. It would be unfair to millions of homeowners who have made the hard spending choices necessary to pay their mortgages on time.

It would further rattle credit markets. It would actually cause interest rates to go up. If banks think that judges might step in and write down the value of home loans, they’re going to charge higher interest rates to cover that risk. This idea would make it harder for responsible first-time home buyers to be able to afford a home.

There are some in Washington who say we ought to artificially prop up home prices. It sounds reasonable in a speech, but it’s not going to help first-time homebuyers, for example. A lot of people have been priced out of the market right now because of decisions made by others. The market is in the process of correcting itself; markets must have time to correct. Delaying that correction would only prolong the problem.

* * * *

We’ve taken three key steps. First, we launched a new program at the Federal Housing Administration called FHA Secure. It’s given FHA greater flexibility to offer refinancing for struggling homeowners with otherwise good credit. In other words, we’re saying to people, we want to help you refinance your notes.

Over the past six months this program has helped about 120,000 families stay in their homes by refinancing about $17 billion of mortgages, and by the end of the year we expect this program to have reached 300,000 families.

I’m old enough to remember savings and loans, and remember who my savings and loan officer was, who loaned me my first money to buy a house. And had I gotten in a bind, I could have walked across the street in Midland, Texas, and said, “I need a little help; can you help me readjust my note so I can stay in my house?” There are no such things as that type of deal anymore. As a matter of fact, my mortgage could be owned by somebody in a foreign country, which makes it hard to renegotiate the note.

So we’re dealing in a difficult environment, to get the word to people there’s help for you to refinance your homes. And so Hank Paulson put together what’s called the Hope Now Alliance to try to bring some reality to the situation, to focus on helping creditworthy people refinance rather than pass a law that will make it harder for the market to adjust. This Hope Now Alliance is made up of investors and service managers and mortgage counselors and lenders. And they set industrywide standards to streamline the process for refinancing and modifying certain mortgages.

Last month Hope Now created a new program called Project Lifeline, which offers some homeowners facing imminent foreclosure a 30-day extension. The whole purpose is to help people stay in their houses. During this time they can work with their lender. And this grace period has made a difference to a lot of folks.

An interesting statistic has just been released: Members of the Alliance report that the number of homeowners working out their mortgages is now rising faster than the number entering foreclosure. The program is beginning to work, it’s beginning to help.

The problem we have is a lot of folks aren’t responding to over a million letters sent out to offer them assistance and mortgage counseling. So one of the tasks we have is to continue to urge our citizens to respond to the help, to pay attention to the notices they get describing how they can find help in refinancing their homes. We’ve got toll-free numbers and Web sites and mailings.

We’ve also taken some other steps that will bring some credibility and confidence to the market. HUD Secretary Alphonso Jackson is proposing a rule that requires lenders to provide a standard, easy-to-read summary statement explaining the key elements of mortgage agreements.

These mortgage agreements can be pretty frightening. There’s a lot of tiny print. And I don’t know how many people understood they were buying resets or not. But one thing is certain: There needs to be complete transparency. And to the extent that these contracts are too complex, and people made decisions that they just weren’t sure they were making, we need to do something about it. We need better confidence among those who are purchasing loans.

And secondly, Hank Paulson announced new recommendations yesterday to strengthen oversight of the mortgage industry, improve the way the credit ratings are determined for securities and ensure proper risk management at financial institutions.

* * * *

There are some further things we can do, by the way, on the housing market that I call upon Congress to do. Congress did pass a good bill that creates a three-year window for American families to refinance their homes without paying taxes on any debt forgiveness they receive. The tax code creates disincentives for people to refinance their homes, and we took care of that for a three-year period. And they need to move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow state housing agencies to issue tax-free bonds to homeowners to refinance their mortgages.

Congress can also take other steps to help us during a period of uncertainty — and these are uncertain times. A major source of uncertainty is that the tax relief we passed in 2001 and 2003 is set to expire. If Congress doesn’t act, 116 million American households will see their taxes rise by an average of $1,800. If Congress doesn’t act, capital gains and dividends are going to be taxed at a higher rate. If Congress doesn’t make the tax relief permanent, they will create additional uncertainty during uncertain times.

A lot of folks are waiting to see what Congress intends to do. One thing that’s certain that Congress will do is waste some of your money. So I’ve challenged members of Congress to cut the cost of earmarks in half. I issued an executive order that directs federal agencies to ignore any future earmark that is not voted on by the Congress.

* * * *

I sent Congress a budget that meets our priorities. There is no greater priority than to make sure our troops in harm’s way have all they need to do their job. That should be a priority of any president and any Congress.

And beyond that, we’ve held spending at below rates of inflation on nonsecurity spending, discretionary spending; we’ve held the line. We’ve submitted a budget that’s in balance by 2012 — without raising your taxes.

If the Congress truly wants to send a message that will calm people’s nerves, they’ll adopt the budget I submitted and make it clear they’re not going to run up the taxes on the working people, and on small businesses, and on capital gains, and on dividends, and on the estate tax.

* * * *

I believe strongly it’s in our nation’s interest to open up markets for U.S. goods and services. I believe strongly that NAFTA has been positive for the United States of America, like it’s been positive for our trading partners in Mexico and Canada.

I believe it is dangerous for this country to become isolationist and protectionist. I believe it shows a lack of confidence in our capacity to compete. And I know it would harm our economic future if we allow those who believe that walling off America from trade to have their way in Congress.

We expect for Congress to move forward on the Colombia Free Trade Agreement. It’s important for our national security interests, and it’s important for our economic interests.

Most Americans don’t understand that most goods and services from Colombia come into the United States duty-free. Most of our goods and services are taxed at about a 35% rate heading into Colombia. Doesn’t it make sense to have our goods and services treated like those from Colombia? I think it does. I think our farmers and ranchers and small-business owners must understand that with the government finding new markets for them, it will help them prosper.

If Congress were to reject the Colombia Free Trade Agreement, it would send a terrible signal in our own neighborhood; it would bolster the voices of false populism. It would say to young democracies, “America’s word can’t be trusted.” It would be devastating for our national security interests if this United States Congress turns its back on Colombia and a free trade agreement with Colombia. Once they pass the Colombia (pact), they can pass Panama and South Korea as well.

Let me talk about another aspect of keeping markets open. A confident nation accepts capital from overseas. We can protect our people against investments that jeopardize our national security, but it makes no sense to deny capital, including sovereign wealth funds, from access to the U.S. markets. It’s our money to begin with. It seems like we ought to let it back.

* * * *

We’re going to deal with the issues as we see them. We’re not afraid to make decisions. This administration is not afraid to act. We saw a problem coming and we acted quickly, with the help of Democrats and Republicans in the Congress. We’re not afraid to take on issues. But we will do so in a way that respects the ingenuity of the American people, that bolsters the entrepreneurial spirit and that ensures when we make it through this rough patch, our driving is going to be more smooth.

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