Obama Calls for Overhaul of Financial Regulations

According to an article on stocks and the economy, democrat Barack Obama said the government must overhaul the rules governing banks and other financial institutions in the wake of a collapse in the subprime mortgage market that has shaken confidence in the U.S. economy.

Saying the nation has lost a "sense of shared prosperity,'' the presidential candidate called for giving the Federal Reserve greater supervisory authority when it acts as a lender of last resort, strengthening the capital requirements for financial companies and streamlining the collection of overlapping regulatory agencies that oversee Wall Street.

"Our free market was never meant to be a free license to take whatever you can get, however you can get it,'' Obama said in an address at New York's Cooper Union for the Advancement of Science and Art. "The American economy does not stand still, and neither should the rules that govern it.''

A deepening slump in the housing market and declines in business investment, consumer spending and construction are prompting sparring among Obama, Hillary Clinton, his rival for the Democratic nomination, and Republican presidential candidate John McCain over how to pull the U.S. back from the brink of a recession and deal with the risks exposed by the credit crisis. All three have delivered speeches on the economy this week.

McCain spokesman Tucker Bounds said in a statement after Obama's speech that the Illinois senator is endorsing the "failed liberal policies of the past.'' In his own economic speech March 25, McCain, an Arizona senator, urged revisions focused "solely on preventing systemic risk'' and not assisting speculators.

Clinton, a New York senator, has called for spending more on job training and for a $30 billion program to help homeowners and communities hit by rising foreclosures to stimulate the economy. Neera Tanden, a Clinton spokeswoman, said Obama was offering "vague principles'' rather than "concrete solutions to provide Americans with greater confidence in the market or keep them in their homes.''

Campaigning today in North Carolina, Clinton added to her economic proposals with a plan for spending $12.5 billion over five years to help displaced workers with training programs and grants for education.

She and Obama criticized McCain, 71, saying he was offering an extension of the economic policies of Republican President George W. Bush.

"I don't think we can afford four more years of that kind of inaction,'' Clinton, 60, said in Raleigh.

To deal with the current slowdown in the economy, Obama urged passage of a second $30 billion stimulus plan, including $10 billion to help homeowners facing foreclosure either sell their homes or modify their loans, aid for state and local governments to prevent service cuts and expanding unemployment insurance to cover more workers. The plan is similar to one Clinton offered on March 20.

Addressing what he said was a flawed regulatory system, Obama blamed both Democratic and Republican administrations for peeling back rules put in place in reaction to the Depression of the 1930s without adapting to changes in the financial marketplace.

"The result has been a distorted market that creates bubbles instead of steady, sustainable growth; a market that favors Wall Street over Main Street, but ends up hurting both,'' Obama said.

He cited the repeal in 1999 of the Glass-Steagall Act, which separated commercial and investment banking and one of the hallmark laws of the late President Franklin Roosevelt's New Deal economic program. While that allowed banks and securities firms to compete more directly, the absence of a replacement reflecting changes in financial markets led to excesses.

"Instead of sensible reform that rewarded success and freed the creative forces of the market, too often we've excused and even embraced an ethic of greed, corner cutting and inside dealing that has always threatened the long-term stability of our economic system,'' he said.

Obama proposed six areas to revamp regulations.

The Federal Reserve should have basic supervisory authority over any institution to which it may make credit available as a lender of last resort, Obama said. "Taxpayers have every right to expect that these institutions are not taking excessive risks,'' he said.

Second, requirements for capital, liquidity and disclosure should be strengthened for all financial institutions, especially for "complex financial instruments like some of the mortgage securities that led to our current crisis,'' he said.

Obama said the government needs to restructure the overlapping and competing regulatory agencies because today's financial institutions no longer fit within specific categories created decades ago.

Related to that, regulations need to change to apply to what institutions do, not their title, he said. Homeowners weren't protected in part because commercial banks and thrift institutions were subject to guidelines on subprime mortgages that did not apply to mortgage brokers and companies.

"It makes no sense for the Fed to tighten mortgage guidelines for banks when two-thirds of subprime mortgages don't originate from banks,'' Obama said. "When it comes to protecting the American people, it should make no difference what kind of institution they are dealing with.''

Obama said the Securities and Exchange Commission should crack down on trading activity that crosses the line to market manipulation. He cited reports that traders made market bets against Bear Stearns before its collapse this month, purposely spreading rumors that the institution was in financial distress. "The SEC should investigate and punish this kind of market manipulation,'' Obama said.

Lastly, Obama called for the creation of a financial market oversight commission to identify unanticipated systemic risks to the financial system. The commission, he said, would meet regularly with the president, Congress and regulators and brief them on the state of financial markets and risks.

Obama, 46, is offering a "credible approach,'' former Federal Reserve Chairman Paul Volcker, an Obama supporter who attended the speech, said in an interview. "You can't solve this problem overnight, but you've got to have a thoughtful review of it and accept the logic that regulatory authority has to be extended and strengthened.''

William Donaldson, former chairman of the U.S. Securities and Exchange Commission and an Obama supporter, said the economy needs "some 21st century reorganization'' to prevent future crises in housing and financial markets, "all of which were sort of driven through a hole in regulation.''

The Commerce Department reported today that the U.S. economy grew at an annual pace of 0.6 percent from October though December, another sign that the U.S. economy may be close to or already in a recession. Orders for durable goods unexpectedly fell in January as companies became more hesitant to invest, the Commerce Department said yesterday. Sales of new homes dropped to a 12-year low.

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IRS spends $42 million mailing letters re: rebate checks

At a cost of nearly $42 million, the IRS wants you to know: Your check is almost in the mail.
The Internal Revenue Service is spending the money on letters to alert taxpayers to expect rebate checks as part of the economic stimulus plan.

The notices are going out this month to an estimated 130 million households who filed returns for the 2006 tax year, at a cost $41.8 million, IRS spokesman John Lipold confirmed.

That works out to about 32 cents to print, process and mail each letter. It doesn't include the tab for another round of mailings planned for those who didn't file tax returns last year but may still qualify for a rebate.

Democrats accused the Bush administration of wasting time and postage.

"There are countless better uses for $42 million than a self-congratulatory mailer that gives the president a pat on the back for an idea that wasn't even his," Sen. Charles Schumer said Friday, arguing the IRS could more effectively spend the money to catch tax cheats.

Keith Hennessey, director of the president's National Economic Council, said the letters are being sent to explain how the tax rebates will work.

"Any time you do something as a government tens of millions of times, there is ample room for people to get confused. And so if you're going to have tens of millions of taxpayers getting checks, you want to get the information out so that you have as few people as possible confused about what's happening, they understand what's coming, and it reduces the number of incoming requests that IRS and Treasury have to figure out how to deal with it," said Hennessey.

"Dear Taxpayer," the letters will begin, going on to say the IRS is pleased to inform the recipient that Congress passed and President Bush signed into law a plan that will provide payments of up to $600 for individuals who qualify or $1,200 for married couples filing jointly. The rebates are the centerpiece of a $168 billion economic stimulus package.

The actual rebate checks are scheduled to go out starting in May, after the IRS has finished separately mailing out routine refunds for the 2007 tax year.

The letters will be a reminder that people need to file a 2007 tax return so they will receive the rebate if they are eligible for it.

Similar notices will go out later to some Social Security recipients and those who receive veterans benefits — groups that often do not file tax returns.

For those people to get a rebate check, they will need to file a tax return if they received at least $3,000 from a combination of certain Social Security benefits, veterans benefits and earned income. The minimum payment for this group will be $300 for an individual and $600 for a couple filing jointly.

Not everyone will be eligible. Singles with income of more than $75,000 and couples with more than $150,000 get only partial rebates, if any.

People who earn less than $3,000, illegal immigrants and anyone who does not file a tax return will miss out. Singles with incomes exceeding $87,000 and couples with incomes exceeding $174,000 also won't qualify, although those caps rise by $6,000 per child.

What will you do with your tax-rebate check?

Here’s a fun msnbc.com article detailing what Americans plan to do with the forthcoming rebate checks…

Answers from consumers vary from gas and credit-card bills to McDonald’s

Is an extra $800 in your pocket enough to change the course of the ailing economy?

President Bush, Treasury Secretary Henry Paulson and members of Congress seem to think so. Washington is talking about issuing tax rebate checks in hopes of staving off a recession. And people around the country, many of them struggling to pay bills, staggering under credit card debt or worried about their financial futures, aren't about to turn them down.

I would probably take that money and breathe a sigh of relief for one month," said Jennifer Simon, who works at a small communications firm in Long Valley, N.J., and spends $1,500 a month on child care.

"It's not a permanent fix," she said, "but I wouldn't send it back."

Taxpayers got smaller rebates, $300 per person, under a similar plan in 2001. There is debate in economic circles — as usual — about whether those checks warded off recession or went straight from the U.S. Treasury into Americans' savings accounts.

This time around, while some people may put the rebate toward a big-ticket item like a flat-screen TV, many echo Ginger Scott, a home-health physical therapy worker in Kansas City, Mo. She says she wouldn't buy anything exciting.

"I think I had too much exciting previously," said Scott, 52. "Exciting will kill your budget." Instead, she said she'd pay off a credit card bill and save what's left over.

President Bush on Friday embraced as much as $150 billion in tax relief, most of it for individuals, to jump-start the economy. He said the country would be "just fine" if Congress passes the stimulus.

While the administration is avoiding specifics, congressional aides said the White House was considering rebates of up to $800 for individuals and $1,600 for married couples. The checks could arrive by late spring.

In interviews, Americans gave a range of ideas for how they'd spend the money, some of them reflecting the pinch of a difficult economy in which the costs of food and gas are rising and jobs are harder to come by.

Take DaMel Nixon, 33, a mailhouse quality control supervisor in Lansing, Mich., who used to be an avid buyer of music but is unlikely to use his $800 to splurge on CDs because he needs money for gas.

"I'm going to need that $20 to put in the tank," he said.

In Fargo, N.D., Doug Benson said he would spend half of the $800 on bills and half on new beds for his children. In New York City, Landy Ung said she would plow the money into her startup Internet business as an incentive for her salespeople.

At a mall in Madison, Wis., Antonia Rivera said would love a new pair of snow boots, but said she'd save the cash anyway. She hopes to retire from her job as a supply clerk at the University of Wisconsin Hospital next year but fears she may not have enough money.

So she's cutting back on all her purchases. "If I need it, I look for the best price," said Rivera, who is 68. "If I don't really need it, I don't buy anything."

And in Kansas City, Jenise Lemmones said she'd let her 8-year-old granddaughter, who lives with her, call the shots: "She just likes to go to McDonald's and the movies."

When the 2001 rebates went out, two-thirds of the cash was spent within six months, according to one paper published by the National Bureau of Economic Research, a private research group that serves as the national arbiter on such matters.

Fans of the rebate say that spending was enough to keep the country out of a longer, more painful recession.

"The recession officially ended the month after the stimulus package checks were sent out," said David Wyss, chief economist at Standard & Poor's.

But a conflicting report, also published by the National Bureau of Economic Research, found the bump in spending went almost entirely to the auto sector, which was then offering zero-percent financing.

"The majority of consumers saved or paid off a debt rather than spending it," said Matthew Shapiro, professor of economics at University of Michigan, who co-wrote the second report.

Economists do agree on this much: A stimulus like this is a one-shot deal.

"Once people have spent it, they may ask, 'Who's going to cover next month's expenses?'" said economist Edward Yardeni, who runs his own research firm.

Still, if the stimulus package passes and it works, it could be worth every penny because the government will save a fortune in the long run, said Mark Zandi, chief economist at Moody's Economy.com.

A deep recession would mean lower tax receipts coupled with increased spending on unemployment insurance payments, welfare and food stamps.

"One hundred-fifty billion dollars, could, in the end, save us $500 billion if it saves us from a long, lengthy, severe recession," he said.

That's not enough for Scott, the Kansas City home-health worker. She wants a long-term fix including tax breaks for health insurance payments by the self-employed or more investment in small business.

She is suspicious of the tax rebate stimulus because "we like to gratify ourselves quickly in this country," she said. "We buy things we can't afford. We are a charge nation."

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