Bush is reassuring on credit turmoil

President expects `soft landing,' says economy remains sound

August 09, 2007|By New York Times News Service

WASHINGTON -- President Bush, seeking to reassure Americans about the economy and combat Democratic criticism of his policies, said yesterday that recent financial market turbulence was not a cause for worry but a natural adjustment from the improvident lending of recent years.

Speaking at the Treasury Department, with Treasury Secretary Henry M. Paulson Jr. sitting across the table and reporters seated in a circle around them, Bush said that his economic advisers would be "paying close attention as the market begins to readjust its assessment of risk" in housing and other sectors.

It was an unusual presentation for Bush both politically and economically. Presidents are usually advised not to wade into discussions of markets at a time when they are so unpredictable and anxiety-inducing.

Bush's suggestion that the recent housing declines should be seen as a normal market correction from past excesses and that the government should avoid interfering with the process carries political risks at a time when people are losing their homes, lending institutions are shaky and Democrats demand action.

Immediately after the president's comments, Democrats excoriated him for saying that the economy was sound, and many called on the administration to encourage federal housing agencies to step in and make more money available, perhaps by buying up troubled mortgages to avoid foreclosures.

For his part, Bush, in a verbal tour of the current economic scene, was eager to both calm the markets and bat down the Democratic calls for the administration to intervene, predicting that the turmoil in the housing sector would end with a "soft landing" and would not damage the larger economy.

"I believe that markets ultimately look at the fundamentals of any economy," Bush said. "And the fundamentals of our economy are strong. Inflation is down. Real wages are increasing. The job market is a strong job market. People are working. Small businesses are flourishing."

Bush, who has a master's degree from Harvard Business School, sought to convey a sophisticated level of understanding, using phrases like liquidity, risk assessment and market adjustment.

Asked about collapsing housing markets, and the risk of them declining further, Bush said: "In a way it's a necessary reaction to a flood of liquidity that came into the market in the past couple years." That was financial jargon for the past several years of easy money, some of it from overseas, at low interest rates.

Bush said that as a result of the deep pools of money available, "housing got really hot" and that a decline was inevitable.

The president added that "if the market functions normally" it would lead to a soft landing. "That's kind of what it looks like so far," he contended.

Democrats are reacting to the current situation less philosophically. Several are calling for the two big government-sponsored buyers of mortgages from lenders, Fannie Mae and Freddie Mac, to provide more money for housing by buying more loans and holding them.

Sen. Charles E. Schumer, the New York Democrat who chairs the housing subcommittee of the Senate Finance Committee, said that if these agencies did not act, it would lead to a collapse of the market for sound mortgages, not just the deeply troubled subprime loans that were sold to new homebuyers and people with less-than-sterling credit.

But Bush appeared to resist that idea, saying that the agencies needed to overhaul their own practices after experiencing accounting scandals before jumping into the current crisis.

Bush said the housing crisis occurred in part because borrowers had not read the "fine print" on their mortgages. "There needs to be financial education measures in place," he said.

Bush was at the Treasury building for an annual meeting with his economic team. Their intent was to plan for issues like the budget, taxes and financial regulation coming up in the fall.

After that meeting, Bush sounded several familiar themes, blasting Democrats for wanting to raise taxes and embark on wasteful spending. He said he would veto legislation to expand the children's health insurance program because it raised some taxes.

The statement appeared to signal the White House's plan to go on the offensive in the fall to counter criticism and widespread economic anxiety by confronting Democrats on time-tested Republican themes like keeping taxes low and spending under control.

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