New Jersey Congressman Talks About the Economic Crisis
Representative Rush Holt
Democrat Rush Holt represents New Jersey's 12th Congressional District in the U.S. House of Representatives. Rep. Holt has been in the Congress since 1998. Kid Reporter Danielle Azzolina lives in Rep. Holt's district. She sat down with the congressman to talk about the current economic crisis and the government's $700 bailout bill.
Scholastic News Online: You voted yes both times for the bailout bill. My job is to explain the bill to kids of America. Can you help me with that by explaining how the bill will help?
Rep. Rush Holt: Most business is based on confidence. For example, a small business says I want to pay my workers- I have 10 employees- and I want to pay them on Friday, but I don't have quite enough money to pay them. But I do know that next Tuesday, I've got an order and I'm going to receive a check for my delivery. So you'll go to the bank, you'll borrow money for four days, for Friday, Saturday, Sunday, Monday and you'll pay it back on Tuesday so that you can pay your workers on Friday. That depends on confidence. The bank has to believe that you're going to be able to make payments, that you're going to be able to pay them back on Tuesday.
What happened now is everybody lost confidence. Nobody believed that if one bank loaned money to another bank, that bank was going to be able to pay them back next week. Nobody was sure if they bought some of these bonds on Wall Street that the bonds were any good or that they would be able to sell them next week. Everybody lost confidence. And so what this financial rescue package does is it says to the banks, it says to the small business owners, it says to the other countries in the world that the government of the United States is going to stand behind these businesses, these loans, these bonds and so you can trust them. You can have confidence that anything you loan them will be paid back, because the United States says, "We'll stand behind them." And so that's what it really was all about. It was trying to bring confidence to the buying and selling that takes place in America all the time. Every day there are houses bought and sold and cars bought and sold and loans paid and payrolls met, but it's all done because people have confidence that it's not going to fall apart tomorrow. It reached a crisis several weeks ago when nobody seemed to trust anybody else. There was no confidence remaining. And so what the Congress did, more than putting up $700 billion, what it put up was confidence, the backing of the United States.
SNO: How long do you think this economic downturn will last?
Rep. Holt: You know, it's affecting a lot of different things now. At first it was just Wall Street companies, but now it's affecting local banks, farmers, local businesses like dry cleaners or car dealers, and it's more than just the stock market. There seem to be problems in almost every part of the economy, and so that means it's going to last a while. Just once we take care of the few bad companies on Wall Street or once we take care of a few week banks or once we take care of a few individuals who have gone bankrupt it will be okay- now I think it's worse than that. And so I think it will probably be a few years any way before things are any better- well, they'll start getting better before they get back to where they were.
SNO: How is the current economic crisis going to affect the future of kids my age?
Rep. Holt: Any time that you lose some money, you have the opportunity to make the money back but then you've lost time, because if it takes you say a year to replace the money you've lost, then you've sort of lost a year of economic activity. You've lost a year where if you had had the money all along you could have used the money and gotten interest from your bank account and you could have maybe built something or bought something valuable. So what it means is you lose some time. And when you're young, fortunately, one thing you've got is time and so it doesn't hurt the youngsters as much as it hurts people who are retirement age. Because if you lose three years of economic activity or one year of economic activity when you're older, that's harder because you just don't have as much time as when you're younger. That's the way I choose to look at it. Now, it may be that if a lot of families- if farmers aren't able to borrow the money to buy the seed to plant their crops, or if car dealers aren't able to borrow the money to buy the cars to put the cars on the showroom floor or the car buyers aren't able to borrow the money to buy the cars then it will be more than just time that is lost. It may be lost opportunities. Kids graduating from high school won't be able to afford to go to college. Or maybe the family vacations will be shorter or less splendid, but I think mostly what will be lost is a little bit of time.
SNO: How is the economic crisis affecting our district?
Rep. Holt: Well the first people who were affected were the people who work on Wall Street and many people in Middletown work in Manhattan. They go in every day by train or by boat. The next people who are affected are the homeowners, people whose mortgage conditions have changed and whose home values have fallen and so they're afraid that they're going to be thrown out of their homes, and in some cases they are thrown out of their homes. The next people who are affected are the small businesses who have to borrow a little bit of money, or maybe even a lot of money to do what they want to do. A builder who wants to borrow a million dollars so he can build a building this year and next year he can rent the building or sell the building, but he borrowed the money and so he can't do his work, his job, which is building. And small businesses. It might be a dry cleaner who needs to buy a new pressing machine because the old one burned out and they can't do it. So it's starting now to affect a lot of these smaller businesses. It hasn't very much yet, but I think it probably will in coming weeks and months affect these smaller businesses.
SNO: What can we learn from this economic crisis?
Rep. Holt: You've probably heard the word "regulation." What happened back in 1929, 1930, 1931, and 1932 was there was a crisis like this. Suddenly people stopped paying each other. Because they lost confidence and nobody had the money to pay their debts and so there was a lot of unemployment and a lot of people thrown out of their houses and so forth. And the government stepped in. And there's still a big debate about whether this was good or not, but most people believe it was good for the government to step in and the government did several things. It put money into the system just like Congress did a couple weeks ago, and it also put in place regulation so it actually put rules for how stocks could be bought and sold. And some of these rules are still in effect but some of those rules and other rules have been added over the decades, but some of those rules have been relaxed and it's true when you relax the rules things can move faster. At a football game, if you didn't have rules you could have a lot more movement on the field. But, you might end up with more people getting hurt and a less enjoyable game. That's like what happened on Wall Street and in the housing market and in small businesses and in banks. The bankers, the Wall Street traders, the mortgage brokers might like to have fewer rules because they can loan money more easily and they can make more sales, but the result is you can have less stability and more damage, more harm to people.
And so I think one of the lessons is we need rules and we need regulations--which is another word for rules--and we need to pay attention to them and enforce them. Part of the reason people lost confidence is people started buying and selling things that should have been out of bounds, which should have been against the rules. But the rules were loosened enough that people were allowed to buy and sell all sorts of things that later they realized they didn't even know the value of. And if you don't know the value of buying and selling, then pretty soon people are going to stop buying and selling it and that's what happened on Wall Street and everybody lost confidence, so that's the lesson I take from it. There are probably better lessons, too.
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Danielle Azzolina is a member of the Scholastic Kids Press Corps.