Ydstie talks of economic reset in crisis

By David Hertz

John Ydstie, an ecoonomics correspondent for National Public Radio, kicked off a new season of Minnesota Public Radio’s Broadcast Journalism Series Tuesday. Ydstie spoke to a group of about 200 local residents and students about the current economic crisis in Kagin’s Alexander G. Hill ballroom. “I think all of us in this room share some of the blame,” Ydstie said, “because we’ve all been part of that buy now, pay later consumer society.”

Ydstie blamed factors like subsidies for homeownership, irresponsible mortgages and mortgage securities which packaged good mortgages with risky ones to make them appear safer to investors, for creating an unsustainable economy that led to the crisis.

“We all knew that it was unsustainable, we all understood that America was living beyond its means, and now its time for the economy to reset, time for the economy to get reset on more firm footing,” Ydstie said.

The demand for mortgages created by the popularity of mortgage-backed securities and low interest rates was a prime example of an unsustainable system, Ydstie said. He told the audience about a profile he did on a Honduran immigrant living in the suburbs of Washington D.C. A realtor convinced her, a housecleaner making about $20,000 per year, to get a mortgage on a $450,000 house by renting out the basement to immigrant construction workers. When the housing bubble burst, the workers left, and she was left with a mortgage she could not pay.

“For her it was a dream, and people were enabling her to have it,” Ydstie said. “It was that kind of mortgage that got made, packaged into these assets that were sold to investors around the globe, and which have become the toxic assets are on banks books and which they can’t get rid of.”

Ydstie said the economic crisis was truly a crisis, but “not the Great Depression.” He compared it to the economic situation in 1980, but with losses coming from a more broad range of the economy.

The Obama administration’s plans for the recovery were a major topic of discussion. Ydstie criticized the $787 billion stimulus package and $275 billion mortgage rescue plan.

“The problem of course with the stimulus bill is that it’s not all going to come tomorrow,” Ydstie said. It will take about 18 months for 75 percent of the stimulus bill money to be spent, according to Ydstie.

He also said that going through the political process made the stimulus less effective. Specifically, he argued it should have targeted funds to low-income Americans, rather than business tax cuts, which he said were less likely to be spent, and created a payroll tax holiday to benefit workers.

Ydstie described Obama’s plan to help homebuyers at risk of foreclosure refinance their mortgage to make it affordable as “a good first step,” but too small to reach the estimated 13.5 million people who are underwater, paying off mortgages that cost more than the current value of the house for which they were taken out.

Despite inefficiencies, government action is necessary, Ydstie argued. “The only man left standing is the government, and if it doesn’t spend, we won’t recover.”

The long-term solution, though, will have to come from reforming the economy, he said.

“[The crisis] will make us look hard at things like our entitlement programs and what we can really expect from them. The road to an economy that works is through healthcare.”

The audience questioned Ydstie energetically on government economic policy. One local resident blamed lack of regulation of the financial markets for the crisis, prompting scattered applause.

“We’ve endured some years of low regulation,” said Ydstie, before being cut off by an audience member loudly saying, “The Reagan years. And Bush.” Another asked, “Where was Chicken Little when all the consumers really needed him?”

Ydstie agreed that lack of regulation played a role. “We’ve been through a period where regulation was a bad word. We’ve learned markets need some regulation.”

The event was part of Minnesota Public Radio’s Broadcast Journalism Series, a Minnesota Public Radio sponsored event that brings major figures in broadcast journalism to the Twin Cities to speak about current issues and their profession.