The state of us

Sunday, 19th October 2008

The state of us

Patrick Cooke

The US has long been known as the land of opportunity, and its ambassador to Malta Molly Bordonaro tells Patrick Cooke she does not expect the current financial crisis to dent this belief.

A prominent figure since her arrival in Malta in 2004, it is evident that the 39-year-old ambassador has resolute pride in her country and great faith in its capacity to be a force for good in the world.

She is well versed in the causes of the current financial crisis gripping the US. Indeed, from 2001 until 2004 she served on the board of directors of Fannie Mae – the Federal National Mortgage Association, which, along with fellow mortgage giant Freddie Mac, had to be bailed out by Congress earlier this year to the tune of $200 billion.

Between them, the two firms guarantee or own roughly half of all the $12 trillion US mortgage market and are mandated by Congress to provide funding to the housing market. Ms Bordonaro recognises that the US government policy of encouraging less than creditworthy people to take up home ownership has been a principal cause of the financial crisis.

“When Americans began to default on their mortgages – and only six per cent of Americans have begun to default – the mortgage-backed security marketplace collapsed

“We will either have the first African-American president, or the first female vice- president. That speaks volumes for America as a society” – Molly Bordonaro. Photo: Matthew Mirabelli.

and went down to zero. Anyone who had these types of assets on their balance sheets had tremendous disruption and as a result stocks began to go down.”

So why did the US government encourage such practices?

“Social policy – implemented by the Clinton administration – first required institutions like Fannie Mae to take on more risk. What (Bill) Clinton did was increase from 30 per cent to 50 per cent how much he mandated Fannie Mae and Freddie Mac to purchase of the mortgages that were being underwritten to low- and moderate-income people.”

To meet these targets, legislation had to be implemented to allow individuals with less than creditworthy status to apply for mortgages with very little down-payment. Didn’t Ms Bordonaro recognise the potential problems of this when she served on the board of directors at Fannie Mae?

“Yes… it was very, very difficult to manage credit and meet this requirement that was put on us by the (Clinton) administration. When I was on the board, we had to report every quarter… We were very conscious, we argued about the fact that this was very difficult, but the regulation under the Bush administration did not change, despite the fact that we argued that this was going to create problems.”

stateofusSo the Bush administration ignored warnings about what could happen?

“They did not change it (regulations)… they did not… they’re culpable as well, but the problem was that by the time the Bush administration came to power, these types of mortgages had already been created and so the investment banking community had flooded the marketplace. By then it would have been difficult or impossible to regulate anyway.

“A lot of the policies were put in place in the 1990s, but the Bush administration could have done more to try to regulate and ensure greater capital reserves be kept.”

President George Bush has faced some criticism for his response to the financial crisis, even from some prominent members of his own party. However, the ambassador praised the administration for taking action to address liquidity and allow for access to credit in the marketplace, as well as engaging with the international community.

The financial crisis has caused governments around the world to dabble in the financial sector to prevent financial services providers from collapse and causing further chaos. This has led to much debate about the merits of American-style capitalism, which hands over power to the markets with minimal regulation and interference. I put it to the ambassador that the current financial crisis might signal the end of unfettered, American- style capitalism and the emergence of a different financial system.

“We’re definitely going to see changes in the financial system, there’s no question about that, but I think it is debateable what it’s going to look like. Obviously, access to credit and liquidity and loans is what makes the economy flow, businesses can’t expand, families can’t buy a home, and American families can’t send their children to college unless they have the ability to borrow.

“The question is, can the US, can Europe, can the rest of the world, provide regulations that increase capital reserves, change some accounting principles to prevent something like this happening, and tighten some of the underwriting requirements without choking up the flow of capital in the marketplace?”

But has the American capacity for global leadership been in some way undermined, since the US was always a driving force – particularly in developing countries – of deregulating markets and keeping government out of the financial industry.

“Let me just say that I think that free enterprise has spoken for itself in terms of what it has done to lift people out of poverty, create middle classes around the world and generate tremendous wealth over the last half century. I don’t think that any country that has embraced free enterprise is going to move backwards. It hasn’t been the US that has been the global leader pushing free enterprise, but it’s been every man and woman throughout the world who has participated in a free enterprise system that has allowed them to have a better opportunity at life.”

But isn’t there an appetite for more regulation of the markets?

“The US has always had, and has always advocated, a strong regulatory framework, not just for banking, but for consumer protection in almost every industry in the US. The US does not advocate a non-regulatory capitalistic marketplace… that’s far from the truth.”

Some political commentators are suggesting that the free-market creed has collapsed and the era of American global leadership, dating from World War II, is over. Instead of arguing against this, Ms Bordanaro responds with a resolute defence of US actions in the world.

“The US has demonstrated time and time again, since World War II, that it will continue to try and expand opportunities and freedom and democracy for people around the world, in a very altruistic way. Our government will continue to work towards a better future for Americans and for others around the world.”

Is the era of the US as the sole global superpower coming to an end?

“It has never been the United States’ desire to be the single global superpower; that’s why we spend billions of dollars to try and build up a country like Iraq, so they can be an independent global nation. That’s why we’ve been so supportive of the idea of the EU from the beginning. The US has always believed in a multilateral, cooperative world, and that is how we see the future of the world.”

When asked what kind of legacy George Bush will leave behind when he leaves office this year, the ambassador declines to respond, saying that giving opinions on the Bush administration is not within her professional obligations. Ms Bordonaro was on Mr Bush’s campaign team before he won the presidency.

With the US election taking place on November 4, both candidates are emphasising their capacity to bring change and reform – what changes, if any, are needed in US politics?

The ambassador says there is no question that the American people would like to see some change, but she diplomatically avoids addressing the question directly.

Polls indicate that Barack Obama is the overwhelming choice of Europeans; does the ambassador feel that Obama’s popularity overseas will have an impact on American voters?

“No, Americans will make their decision on who they think will be the best leader, and who will address the economic problems. They’re really attracted right now to who is going to be able to show the best leadership, in terms creating more confidence and hope in America to create a better future.”

Can Ms Bordonaro pinpoint why Obama is more popular in Europe than he is in the US?

“I think that has to do with the campaign he has run on change. There is no question that the Bush administration has made tough choices on foreign policy during his eight years that have left people in Europe without a favourable opinion of the Bush administration.”

Are the hopes of Europeans on this matter justified, or will they ultimately end up disappointed with the foreign policy of a President Obama?

“I think it’s too early to say what a President McCain’s or a President Obama’s foreign policy will be. They’ve certainly laid out some goals and visions and specifics, which are not vastly different from President Bush’s, but I can’t predict what their ultimate decisions will be.”

The great unknown about the forthcoming election is to what extent the issue of race will affect voting behaviour. According to the ambassador, it will have no effect whatsoever.

“I think the US is beyond the racial issue, the same way we are beyond the gender issue. That makes me more proud about this election than anything else. This is a race between two great candidates, that are discussing ideas, and Americans will vote for who they think is the better leader, not based on race, and not based on anything else.”

When probed further about whether at least some people will vote on race, or whether people would cite racist tendencies if Obama lost, she responds in the negative.

Ms Bordonaro is also dismissive of the suggestion that there has been an excess of negative campaigning in the election campaign, saying she was unaware of the McCain campaign’s recent attempts to link Obama to Bill Ayers, a former domestic terrorist.

“I think this campaign has been a phenomenal discussion of really salient issues that are on the minds of the American people, and quite frankly, on the minds of people around the world. Dating back to the primaries, we have had more than a year of discussion about foreign policy and healthcare, education and tax policy. This is good for democracy and good for America.”

Like vice-presidential nominee Sarah Palin, Ms Bordanaro is a working mother in a position of great responsibility. While the ambassador would not comment about Sarah Palin in a political sense, she is pleased to see that the US is calling on all its talents.

“I think it’s a great thing that a woman with children is doing so well. No society can be strong without calling on all its members to help build a nation, and that includes women and mothers, so she’s wonderful in terms of representing that.”

Ms Bordonaro goes on to hail the historic diversity of the two presidential tickets.

“I think what’s great about this presidential election is that, whoever wins on November 4, history will be made. We will either have the first African-American president, or the first female vice-president. That speaks volumes for America as a society. It shows that we not only espouse the values of equal opportunity for everybody, but we actually embrace them whole-heartedly when electing our leaders.”

Moving on to a more general issue, the ambassador is asked whether she has detected an increase in anti-American sentiments over the past eight years.

“No, I would say that, especially here in Malta, I have greatly appreciated the Maltese being able to separate where they may differ on policy from the American government, but not have that spill over into anti-Americanism, or dislike for the American people.

“I think it’s a good thing to have differences of opinion around the world, and to be able to speak out about it. And I enjoy being able to speak to people with a different opinion about American foreign policy. But I very much appreciate the Maltese for their continuing ability to say that, ‘while we may differ on policy, we still appreciate America, we appreciate the American contribution throughout history, and we like the American people'”.

Are Americans concerned about the way that the rest of the world sees them?

“One of the greatest things about the US, throughout history, is that Americans feel very strongly about doing what is right, from a humanitarian aspect, and allowing everyone to have the opportunity for freedom and democracy. So one of the greatest things about the US is that, while it’s nice to be liked, we tend to care about being right.

“We don’t mind being the only ones advocating going into Darfur; we don’t mind being the only ones to say it’s not right to have people murdered and killed by a tyrannical dictator, and we will do what we can to change the world to be a better place, to make it happen. Of course we make mistakes; tactical decisions might be wrong; timing might not be right; but America will never give up its push to see every human being in the world have as best an opportunity for freedom and democracy and a better future.”

So, what lessons has the US learnt from Iraq?

“President Bush has effectively come out and said that certain tactical decisions were not made, which affected how the war went. It’s obviously come at a great cost to the young American men and women who have lost their lives and at a cost to American taxpayers. In the end, is it better that Iraq has the chance for democracy and freedom?

Is it better that Iraq is setting up the institutions that are creating opportunities for all Iraqis, and allowing their economy to grow? Yes.”

When asked whether the US’s action in Iraq may have undermined its capacity to act so forcibly in foreign affairs elsewhere, such as Georgia, she disagrees.

“The US takes every foreign policy situation separately. For example, with the issue of Iran, we have worked through diplomatic channels. There is no one blanket policy that the US would ever embrace. I think the US continues to try to find ways to make the world a better place and contribute what it can to do so. We try to make the world safer and secure for everyone, including Europe.”

On bilateral relations with Malta, Ms Bordonaro is happy to highlight the success of the “ongoing, permanent” refugee resettlement programme.

Between May until the end of this year a total of 200 refugees will be resettled from Malta to the US and the ambassador says it will continue at a slightly faster pace next year.

“We made the decision to help because Malta asked and we recognised the fact that proportionately, it was difficult… So, we made a decision for humanitarian reasons, and also to help Malta have a more proportionate number to work with to assimilate and integrate. We’re happy to help Malta, and we made this decision for that reason.”