Students weigh in on financial crisis issues

Syracuse University student Veronica Boehm said she knows all too well about the state of the United States economy.

Higher gas and tuition prices made it too expensive for Boehm, a sophomore history major, to bring her car to campus. Now, last week's bankruptcy announcement from investment banking firm Lehman Brothers means she must search for a new student loan lender for the spring.

"It hits more now," Boehm said, describing the effect of the recent economic downturn on the cost of her education.

The collapse of Lehman, along with the simultaneous purchase of investment bank Merrill Lynch by Bank of America, are just two examples of the string of bad news that have humbled the American economy recently. After Lehman's collapse, weaknesses within insurance giant AIG also surfaced.

Earlier this month, the federal government took over Fannie Mae and Freddie Mac, two of the country's largest mortgage buyers, which were on the verge of bankruptcy. At the same time, the Department of Labor announced the unemployment rate in August had increased to 6.1 percent, its highest level since 2003.

While the price of gasoline has decreased since its July peak above the $4.10 mark for regular, it is still roughly $1.05 higher than a year ago, according to the Department of Energy's Web site.

Reacting to the turmoil on Wall Street, the White House, led by President George W. Bush and Treasury Secretary Henry Paulson, have proposed a sweeping bailout plan that will give the Treasury Department $700 billion to buy bad assets-backed mortgage debt from financial companies. Critics on both ends of the political spectrum have blasted the proposal for its wide scale intervention in the market place.

Some SU students said they have been hit by the current economic climate in ways both large and small:

• Erin Scialabba, a freshman magazine journalism major, said that her family skipped taking a vacation this past summer, and that she is careful about what he spends her money on. She said she's particularly worried about the state of the financial services sector, as her father is a financial advisor for Wachovia, a bank hit by the credit crunch. "We're making a conscious effort not to spend excessively and make only practical purchases," Scialabba said.

• Ashley Torregrossa, a junior psychology major, has made cutbacks in her discretionary spending. "It's just limited going out to eat, spending money on luxury items," she said, adding that her father, who works for a mortgage company, has seen his income go down.

• Zack Smith, a junior advertising major, found difficulty in getting a summer job. "I was looking to work in restaurants to subsidize an internship that I had, and it was really hard to get a foot in the door at restaurants because no one's been going out recently, and the restaurant business has taken a hit," he said. Smith said his father, who owns a carpentry business and does home editions, has seen slow business, because there are fewer people making home improvements.

The magnitude of the bad news has made the state of the economy the most important presidential election issue to voters, according to poll results.

In a recent Newsweek poll conducted from Sept. 10 to Sept. 11, 39 percent of registered voters said the economy and jobs were the most important issues in picking which candidate they will vote for in November, beating out issues such as national security and the War in Iraq.

With such concern about the nation's financial status, attention turns toward what proposals the two major party candidates, Democrat Sen. Barack Obama and Republican Sen. John McCain, have for bolstering the economy.

"I think the voters really would like to know what the perspective candidates are going to do about getting the country out of the current economic crisis," said Tom Barkley, an assistant finance professor in the Martin J. Whitman School of Management. "There's a lot of unemployment, a lot of concern about people who are out of a job trying to find new jobs."

Barkley said the most important things the candidates should look at include encouraging more students to enter math and science fields, improving investors' confidence, increasing business productivity, reducing the price of commodities such as oil and strengthening the dollar.

Both McCain and Obama supporters made the case for why they said they think their candidates were better suited to deal with the downturn.

Lisa Daly, central New York coordinator for Syracuse for Obama, said she believes Obama is more in touch with voters' economic concerns than McCain.

"We just can't continue the policies we've had," she said. "They don't work. They reward wealth instead of work."

In particular, Daly mentioned Obama's alternative energy policy and its economic role in weaning the country off of oil.

"Senator Obama recognizes what a central role energy policy plays in economics, specifically I think his commitment to expanding alternative energy and investing in green jobs," she said. "That's the future, and to me that's extremely important, and I think that people recognize in everyday life that's extremely important when you're paying $4 a gallon for gas."

Regarding the Treasury's proposed bailout plan, Obama said it was a "welfare program for Wall Street executives" and laid out changes he would like to see made, including a limit on CEO pay for bailed out companies and a demand there be a federal investment share in the companies that accept aid.

On tax policy, Obama supports a tax credit of $500 per individual and $1,000 per family to offset payroll taxes on the first $8,500 of earnings. He also supports elimination of capital gains taxes for small business, according to his Web site.

Obama proposes a $4,000 refundable tax credit as college financial aid on top of current grants and loans. He also supports a repeal of the 2001 and 2003 Bush tax cuts for people making more than $250,000 annually and proposes raising the estate tax.

Obama also proposes a mortgage credit to make it easier for homeowners to deduct interest when filing taxes. He calls for tougher penalties on lenders who commit fraud. In addition, the senator calls for creating a homeowners' fund to help people refinance their mortgages, according to his Web site.

Nicholas Johnson, chairman for both SU's College Republicans chapter and Students for John McCain, said that McCain had a better understanding of the marketplace and that his free marketplace philosophy is better suited than government intervention in most cases to handle downturns.

"The free market is the best and most productive economic system we've had throughout history, and turning to government to fix all the problems is not the right way," Johnson said.

"The government does have a place in the economy but it's rare," he said, adding that McCain will intervene in extreme cases, such as the government's bailout of Freddie Mac and Fannie Mae, where economic consequences extend beyond one or two companies failing.

In particular, Johnson said drilling for oil domestically to lower gas prices is one of McCain's priorities. He said in addition to drilling McCain supports nuclear, solar and wind power.

Johnson also said energy policy, taxes and trade are areas that play to McCain's strength.

McCain has proposed cutting the tax rate on corporations from 35 percent to 25 percent and lowering the capital gains tax. McCain wants to make the Bush tax cuts permanent and has called Obama's partial rollback an unfair tax increase.

On the issues of foreclosure and lending, McCain has proposed giving homeowners facing foreclosure the opportunity to replace their loans with 30-year fixed-rate mortgages, which maintain the same interest rates, backed by the Federal Housing Administration.

To help students whose loans may be jeopardized by banks not having as much money to lend as a result of the massive foreclosures, McCain proposes expanding lender of last resort capabilities to the federal student loan system, in coordination with the Department of Education.

Like Obama, McCain has also said he is willing to consider the Treasury Department bailout. McCain also said he would like to see a limit on CEO pay and a clear plan to help taxpayers eventually regain money to be spent by the Treasury.

While each candidate promises to return results on his policies, Robert McClure, a professor in the Maxwell School of Citizenship and Public Affairs, takes a different position. He said economic trends are generally independent of what a president can do, with the exception of actions at the margin.

"The forces that drive an American economy, particularly today and even in the past, are so multiple, so powerful, so global, that whether or not a government, by government action ... can have a great effect, even perhaps much effect, seems questionable to me," said McClure, political science and public affairs professor. "You will hear candidates in both parties say something like this frequently: 'If elected I will create 'X' number of jobs.' That's nonsense."

McClure also questioned the two candidates ability to deliver their promises.

"The more often you put people seeking votes in close proximity to voters with grievances, the higher the probability the candidate will offer a pandering response," he said.

tbauchte@syr.edu