President Bush Visits the Economic Club of New York

March 14, 2008,THE PRESIDENT: Glenn, thanks for the kind introduction. Thanks for giving me a chance to speak to the Economic Club of New York. It seems like I showed up in a interesting moment -- (laughter) -- during an interesting time. I appreciate the fact that you've assembled to give me a chance to share some ideas with you. I also appreciate the fact that as leaders of the business and financial community, you've helped make this city a great place, and you've helped make our country really, in many ways, the economic envy of the world.,First of all, in a free market, there's going to be good times and bad times. That's how markets work. There will be ups and downs. And after 52 consecutive months of job growth, which is a record, our economy obviously is going through a tough time. It's going through a tough time in the housing market, and it's going through a tough time in the financial markets.,And I want to spend a little time talking about that, but I want to remind you, this is not the first time since I've been the President that we have faced economic challenges. We inherited a recession. And then there was the attacks of September the 11th, 2001, which many of you saw firsthand, and you know full well how that affected our economy. And then we had corporate scandals. And I made the difficult decisions to confront the terrorists and extremists in two major fronts, Afghanistan and Iraq. And then we had devastating natural disasters. And the interesting thing, every time, 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 percent. 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 as Glenn mentioned, these are tough times. Growth fell to 0.6 percent 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 -- they're 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. We worked with the Congress. I know that may sound incongruous to you, but I do congratulate the Speaker and Leader Reid, as well as Boehner and Mitch McConnell and Secretary Paulson, for anticipating a problem and passing a robust package quickly.,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 rebates haven't been put in the mail yet. In other words, this aspect of the plan hasn't taken to effect. There's a lot of Americans who've heard about the plan; a lot of them are a little skeptical about this "check's in the mail" stuff that the federal government talks about. (Laughter.) But it's coming, and those checks, the Secretary assures me, will be mailed by the second week of May.,And so what are the folks, the experts, guys like Hubbard, anticipate to happen? I'm not so sure he is one now, but the people that have told me that they expect this consumer spending to have an effect in the second quarter, a greater effect in the third quarter. That's what the experts say.,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. And this week the Fed -- and by the way, we also hold dear this notion of the Fed being independent from White House policy. They act independently from the politicians, and they should. It's good for our country to have that kind of independence.,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. That's why the Fed is reacting the way they are. We believe the actions by the Fed will help financial institutions continue to make more credit available.,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 downtown in the housing market, and I want to talk a little bit about that today. 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 times helps people? Before I get to that, though, I do want to tell you that we fully understand that the mounting concern over housing has shaken the broader market, that it's spread uncertainty to global financial markets, and that it has tightened the credit, which makes it harder for people to get mortgages in the first place.,The temptation is for people, in their attempt to limit the number of foreclosures, is 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 got to 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 are -- 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. You know, 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, like -- who speculated in homes. This bill sends the wrong signal to the market.,Secondly, 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. You know, it sounds reasonable in a speech -- I guess -- but it's not going to help first-time home buyers, 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.,And so that's why we oppose those proposals, and I want to talk about what we're for. We're obviously for sending out over $150 billion into the marketplace in the form of checks that will be reaching the mailboxes by the second week of May. We're for that. We're also for helping a targeted group of homeowners, namely those who have made responsible buying decisions, avoid foreclosure with some help.,We've taken three key steps. First, we launched a new program at the Federal Housing Administration called FHA Secure. It's a program that'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.,You know the issue like I do, though. 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 got in a bind, I could have walked across the street in Midland, Texas, and say, 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, the paper -- you know, had this been a modern era, the paper that had -- you know, my paper, 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 our help on helping creditworthy people refinance -- rather than pass law that will make it harder for the market to adjust. This HOPE NOW Alliance is made up of industry -- is made up of investors and service managers and mortgage counselors and lenders. And they set industry-wide standards to streamline the process for refinancing and modifying certain mortgages.,Last month Hope Now created a new program. They take a look -- they took a look at the risks, and they created a 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 that 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. And 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 got toll-free numbers and websites and mailings, and it's just really important for our citizens to understand that this help is available for them.,We've also taken some other steps that will bring some credibility and confidence to the market. Alphonso Jackson, Secretary of HUD, is proposing a rule that require lenders to provide a standard, easy-to-read summary statements explaining the key elements of mortgage agreements. These mortgage agreements can be pretty frightening to people; I mean, 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 for 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 amongst those who are purchasing loans.,And secondly, yesterday Hank Paulson announced new recommendations to strengthen oversight of the mortgage industry, and improve the way the credit ratings are determined for securities, and ensure proper risk management at financial institutions. In other words, we've got an active plan to help us get through this rough period. We're always open for new ideas, but there are certain principles that we won't violate. And one of the principles is overreacting by federal law and federal regulation that will have long-term negative effects on our economy.,There are some further things we can do, by the way, on the housing market that I call upon Congress to do. By the way, 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 create 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 number of, 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. In other words, Congress has got this habit of just sticking these deals into bills without a vote -- no transparency, no light of day, they just put them in. And by the way, this executive order extends beyond my presidency, so the next President gets to make a decision as to whether or not that executive order stays in effect.,I sent Congress a budget that meets our priorities. There is no greater priority than to make sure our troops in harm way have all they need to do their job. That has been a priority ever since I made the difficult commitment to put those troops in harm's way, and it should be a priority of any President and any Congress. And beyond that, we've held spending at below rates of inflation -- on non-security spending, discretionary spending, we've held the line. And that's why I can tell you that 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 to them 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.