With the jobs picture bleak and getting steadily bleaker, President Obama needs to shed the tightly restrained list of options that the D.C. establishment considers it acceptable to consider. The things Republicans want to consider would be laughable if they weren’t so awful: more (and more and more and more) tax cuts for the wealthiest 1 percent and biggest corporations already awash in money they aren’t using to create jobs. The list of things establishment D.C. Democrats want to consider range from the good but politically impossible (like more fiscal stimulus) to the good but really small (such as tinkering here and there with small targeted tax credit ideas) to bad ideas taken from Republicans and modified to make them slightly less extreme.
But there are ideas outside of this very narrow range of conventional wisdom in Washington that the Obama administration, along with key big states with Democratic Governors and legislatures, could do right now that could boost the economy significantly. Here are four big ideas that would make an immediate difference in pumping up the economy, things the Obama administration could do without going through Congress:
1. Use TARP. The economic crisis that spurred the creation of TARP may have stabilized, but it sure hasn’t ended. And TARP is still open for business: while most of the no-strings-attached big bank bailout money has been returned, TARP still is authorized to spend $475 billion. Since the big banks are hoarding their money and using it to give huge bonuses to their execs, why not turn the TARP money into a modern day Reconstruction Finance Corporation (the agency that FDR used to help lift us out of the Great Depression), and start lending TARP money out to small business entrepreneurs who actually planned to create jobs. This might also provide some competitive spur to the banks who are just sitting on their money. TARP is unpopular, and Republicans might score some short-term political points screaming about the money being used for this, but I think Obama would win the fight by saying that rather than investing in the big banks, it's time to invest in small businesses that are actually going to use the money to create real jobs.
2. Fannie and Freddie. The Obama administration has virtually unlimited authority in bailing out Fannie and Freddie. The government runs Fannie and Freddie. And right now, Fannie and Freddie are acting as badly as any other big bank in foreclosing on homes and driving down housing prices for their own short-term gain. It is time to take advantage of actually being in charge of these two huge financial institutions, and run them in a way that keeps more people in their homes through mortgage writedowns and stabilizes the housing market as a result. This would do as much to stimulate the economy as any other thing that could be done right now.
3. Ratchet up pressure on Wall Street to write down mortgages. The Federal government does not run the six big banks that dominate our financial sector like they do Fannie and Freddie, but as they proved beyond a shadow of a doubt during the 2008-9 financial panic, they have the regulatory power to do whatever is needed in a crisis — and that is certainly what this kind of economy feels like to most Americans. This week, Treasury actually showed again that they do have that kind of muscle in writing a rule that will force banks to help unemployed homeowners trying to hang on to their homes. It was the best thing Treasury has done in a long time, and long overdue. Now they just need to take the idea further, and keep squeezing the banks to write down underwater mortgages of homeowners who still have jobs but are hanging on by a thread because the value of their house collapsed. By getting Fannie, Freddie, and the six biggest banks to writedown all of the underwater mortgages in the country, you would inject hundreds of billions of dollars into the economy because middle-income homeowners' monthly mortgage payments go down. Plus you stabilize the entire housing market, giving homeowners more confidence and financial security, and allowing them more operating room to make other purchases and maybe even start new businesses.
4. Finally do something about Chinese currency manipulation. If the United States were to declare the Chinese in violation of fair trade rules under WTO because of currency manipulation, they could immediately impose tariffs against Chinese goods and provide an immediate and dramatic boost to America's long ailing manufacturing sector, generating tons of good paying jobs very quickly. This isn't protectionism, it is actually the exact opposite: demanding China operate under the trade rules every other country on Earth is expected to. And ironically, this wouldn't generate much political heat, as big majorities in both Houses of Congress already are on record supporting this action.
These four things, all of which could be done without having to go though Congress, would all provide immediate jolts to the Main Street economy, put money into the pockets of the hard pressed middle class, and create a lot of jobs quickly. They would show middle-class voters that the President was decisively and dramatically on their side. And who knows: they might even help compensate for all the damage that will done to the economy by the contractionary budget cuts in whatever bad deal the President finally agrees to in order to get the debt ceiling increased — because the only question isn't whether this budget cutting deal will be bad, but just how bad will it be.
The issue is that President Obama will have to go beyond the confines of the conventional wisdom economic advisers that dominate the halls of power in D.C., he will have to pick a big fight with Republicans, and he will have to make Wall Street very unhappy, because all four of these policy initiatives will make them mad. But he has to be bold to save this economy, and his own re-election chances. It is time to act.
