Treasury Secretary Henry Paulson said that although some of his decisions have been unpopular, they have been essential to preserving the free market system.

“Some of the things that I’ve been part of have been very, very objectionable decisions but they’ve not been difficult decisions because they are much [better] than the alternatives,” said Paulson during a forum on business and policy issues sponsored by Fortune magazine.

When asked if there was any line that he would not cross in order to protect the economy, the Secretary was reluctant to answer.

“You’re not going to get me to say ‘never’ and tell you where I’ll draw the line, because if you were to ask me the question a year ago, I would have drawn the line in a different place than I actually did when I was faced with the choice.”

Paulson explained that in order to combat the recent economic setbacks, there are several steps that need to be taken, such as creating more effective regulation in the financial system, establishing authorities to deal with non bank institutions, and updating infrastructure to better handle OTC derivatives. The Treasury Secretary contended that taking these actions warrants more immediate concern than finding the origins of the crisis.

“We don’t want to rush to a quick conclusion…we should be focusing on getting through the night first and then when recovery is well underway we can look in the rearview mirror and really understand the nature of the problem.”

Joy Phumaphi, Vice President for Human Development at the World Bank, says that while economic improvements in poorer countries have been made, the global financial crisis puts those improvements in danger. (0:31)

 

 Standard Podcast: Play Now | Play in Popup | Download

The economic crisis has led to 100 million more people starving worldwide according to David Beckman, President of the Bread for the World Institute. In addition to that, Joy Phumahi, Vice President for Human Development at the World Bank said that 44 million more people are suffering from malnutrition as a result of the worldwide financial crisis.

At a presentation held by the Bread for the World Institute, Phumaphi said “all countries are in harm’s way.” In order to try and help global poverty and hunger, Phumaphi felt the U.S. must financially assist in improving health, agriculture, and infrastructure. She also stated that the U.S. must invest in better education abroad. Phumaphi noted that children leaving school as a result of the financial crisis “rarely return to the classroom.” She did acknowledge that there had been positives in poverty globally, especially in Africa, but this crisis had left those improvements “at risk.”

Ken Hackett, President of Catholic Relief Services, said that any foreign assistance should be done in the interest of the poor. He also claimed that foreign assistance has become too “fragmented,” and collaboration should be a priority in improving foreign assistance. He also felt it is “critical” that civil society agencies be used to help assist government in providing relief to poverty-stricken communities globally.

In a report released by the Bread for the World Institute, the institute states U.S. foreign assistance reform should include specific goals of poverty reduction worldwide, partnerships with countries receiving assistance to meet long-term goals, and closer coordination with other international donors worldwide.

Rep. Hilda Solis (D-Calif.) says what it will take to create energy change, and why she believes energy change can be so beneficial. (1:28)

 

 Standard Podcast: Play Now | Play in Popup | Download

U.S. Representative Hilda Solis (D-Calif.) said the new administration must invest in environmental and energy changes and should “get started in the next six months.”

In order to attain the necessary energy and environmental changes, Solis said it will take “political will,” and “leadership,” but emphasized it will not take a lot of money. She said that it will not be easy to convince Congress of the need for these big changes in environmental and energy policy, saying there are “not a lot of members in the House of Representatives, in my opinion, that grasp this concept.”

Solis advocated “greening our buildings, greening our infrastructure.” She felt this would increase jobs that would “stay here” and would allow for areas to “sustain communities.”

Senior Fellow at the Center for American Progress Van Jones said the economy is collapsing because the U.S. economic structure over the last 30 years was “not sustainable.” He felt that there are three inherent flaws in the U.S. economy: it has been “based on consumption, not production,” the U.S. can’t “run the economy forever based on debt,” and one cannot run an economy based on “environmental destruction, not environmental restoration.”

Jones claimed that energy change would not be as difficult as it seems because, “We have a Saudi Arabia of wind energy in this country, we have a Saudi Arabia of solar energy in this country.” He also said that energy investment “pays for itself” because it will lower overall energy cost, and will immensely increase available jobs. He claimed that if the government invested $100 billion, “we can have two million new jobs in two years.”

The Senate Committee on Banking, Housing and Urban Affairs held a hearing today on “Oversight of the Emergency Economic Stabilization Act: Examining Financial Institution Use of Funding Under the Capital Purchase Program.”

Committee Chairman Christopher Dodd (D-Conn.) voiced his concerns over how the money for the $700 billion Emergency Economic Stabilization Act (EESA) was being used.

“The acceptance of public funding carries with it a public obligation,” said Dodd. “One cannot benefit from taxpayer support in all its many forms and assume that one has no duty to serve that same taxpayer.”

Dodd expected lenders who received some of the $700 billion to preserve homeownership. “The foreclosure crisis is the root cause of the larger financial crisis…Until we solve the foreclosure problem, we will not have any hope of solving larger economic problems.”

The Senator was critical of lenders who had received public funds and used the money to buy other financial firms or give their executives benefits rather than give out loans. “Credit is the lifeblood of the economy…Lenders have a duty to use these funds to make affordable loans to credit-worthy borrowers on reasonable terms,” said Dodd. “If they do not, then in my view they are acting outside the clear intent of the statute and should reform their actions immediately,” he concluded.

In the wake of highest GDP contraction in seven years, several economic experts offered their take on the recent crisis and weighed in on the costs and benefits of a fiscal stimulus package during a Joint Economic Committee hearing in the Dirksen Senate Office Building.

“This is likely to be the most severe recession the United States has experienced in a number of decades,” said Nouriel Roubini, professor of economics at New York University’s Stern School of Business.

“This is going to be much longer, more severe, more protracted than the average U.S. recession.”

Roubini recommended an aggressive fiscal stimulus package priced anywhere between $300 billion and $400 billion, and warned that it should be passed soon.

“We cannot wait until the next congress in February because three months from now, the collapse of spending, consumption, and investments is going to be so sharp that the economic contractions could become even more severe.”

Roubini said that the next package should focus on direct government spending for goods and services since the private sector has decreased its overall consumption.

Richard Vedder, Professor of Economics at Ohio University and visiting scholar at the American Enterprise Institute, said he was “dubious” of a fiscal stimulus package. Vedder said that fiscal stimulus does little to aid the economy, and pointed out the last stimulus package was followed by a decrease in GDP and a rise in unemployment rates. However, if fiscal stimulus is unavoidable, Vedder stated that it should take a different form. “If you’re going to have a stimulus package, certainly a tax cut is preferable to a spending increase…a tax cut would have some more positive long run incentive effects.”

When asked if the Troubled Asset Relief Program, or the bailout bill, was a good idea, Roubini answered it was the right step as long as it was used to inject banks with public capitol. This was a notion agreed upon by Simon Johnson, Ronald Kurtz Professor
of Entrepreneurship at MIT.

“The original design of TARP to buy distressed assets was a bad idea and remains a bad idea. Using those funds to recapitalize the bank system and the insurance industry, and other financial institutions that may need recapitalization as we head into serious recession is a very good, if not essential idea,” said Johnson.

Vedder said that he reluctantly supported the original proposal, but was neutral regarding the revisions.

Nouriel Roubini, professor of economics at New York University’s Stern School of Business, says that the current recession may last for up to two years, and will be more severe than the average recession without a fiscal stimulus package (0:34).

 

 Standard Podcast: Play Now | Play in Popup | Download

“We need to make sure these hearings aren’t merely a fact-finding expedition or whether it is laying the groundwork for action in Congress next month on a stimulus package,”Ranking member, Jim McCrery, said at the Ways and Means Committee hearing on Economic Recovery, Job Creation and Investment in America.

The Governor of New York, David Paterson, stated that as part of the second economic stimulus package, states need direct and immediate fiscal relief to help close their massive budget deficits. “Much of the good that would be done through proposals like expanding unemployment or food stamp benefits would be undone if states do not receive necessary federal budget relief,” Paterson said.

The Governor of South Carolina, Mark Sanford, said that he doesn’t believe that throwing more money to the institutions that put our economy in this situation is the way to go. Sanford said that no matter what amount of money is thrown at the consumer, individuals and businesses will likely choose to wait to make their purchases or investments. “Essentially, you’d be transferring taxpayer dollars out of the frying pan- the federal government- and into the fire- the states themselves,” Sanford said. Sanford believes that giving states more freedom, flexibility, and more options instead of more

Chief Administrative Officer for Montgomery County, Maryland, Timothy Firestine, said that it is important to note that while the state and local governments are suffering the effects of the current credit crisis, the general problems in the municipal market are not due to any fundamental problem with the underlying credits themselves. “In a quest to stimulate the economy, create jobs and help state and local governments, Congress could act to infuse capital in the municipal securities market in order for governments to begin vital infrastructure projects,” Firestine said.

Firestine and Sanford both agree that any taxation would exacerbate the economic crisis and they both stated that if anything needs to be done with taxes it would be to lower them.

Former Director of Enforcement at the Securities and Exchange Commission William McLucas says that appropriate punishments for corporate crimes must be found. He says that those punishments do not always include a prison sentence. He added that this is difficult to see right now considering the economic climate. (1:07)

 

 Standard Podcast: Play Now | Play in Popup | Download