Do Your Research, Ezra Klein!
Ezra Klein has joined the melee over the Obama Administration's housing policy failure with an apologia for the Administration. Klein argues:
The right question on housing, then, is not whether the administration’s policies proved insufficient. They did. It’s what would have been better. And that’s not a question that either Appelbaum or Goldfarb conclusively answer. It’s not even a question that the most credible critics of the Obama administration’s housing policies conclusively answer.
In making this claim, Klein ignores a long list of the Administration's critics who pushed hard and vocally for more pro-active policy alternatives. (I'm going to ignore the "conclusive" part of Klein's restatement of the issue. If he wants critics to prove "conclusively" that an alternative would have been better, then nothing will suffice. We're not dealing with a pick-your-own-adventure book where you can go back and try out different decisions.)
As far as what would have been better: gosh, there's a list of potential interventions that very credible people were proposing. Here are a few:
- bankruptcy cramdown (proposed by numerous people, including Elizabeth Warren, and passed by the House)
- principal reductions as part of HAMP (urged by the Congressional Oversight Panel chaired by Elizabeth Warren and only belatedly added in a milquetoast way by Treasury)
- a new HOLC or the like (proposed by numerous people, including Joe Stiglitz, Howell Jackson, Ellen Seidman, and Rep. Brad Miller).
But while we're on the topic of missed opportunities, there's a huge one that's been omitted from the list: the robosigning investigation. There have been three times when the Administration has had enormous leverage over the banks: the initial bailout, the first stress tests, and the robosigning investigation. Each time the Administration had the ability to force the banks to reduce principal or do whatever else it wanted, and each time it shied away. Bottom line here was that the Administration chose to protect the banks rather than deal with the losses in the housing market, and that's not a decision it can disown.
Btw, while we're on the housing policy issue, can anyone tell me what the Administration's housing policy is now? As far as I can tell, we don't have one.
The comptroller of the currency has plenty of leverage and it seems very likely it is about to be used.The comptroller was recently replaced along with the primary attorney for the office of the comptroller. The replacements seem much less sympathetic toward the banks. The "Independent foreclosure review" rules have been flagrantly violated by all of the national banks giving The new comptroller plenty of justification for punishment on s massive scale after all they have been vfned many many millions with no effect.
It seams obvious that the IFR program is designed to give the bankers a to fail thus giving another reason that the banks should be "severely "punished . Politically this seems brilliant...Rather than bailing out homeowners the administration will punish the banks an almost universally popular move.This is a great example of not wasting a disaster. The Moet proposal editorial sets the stage
Posted by: james harry fosbinder | August 21, 2012 at 07:30 PM
The Administration does have a housing policy, and it's the same one implemented on day one after swearing-in: Put bubble-days borrowers to work at foaming the runway for the banks and bond-holders. Declare every crime perpetrated against borrowers and their communities as "not illegal". Put in-place policy, procedure and regulation that enslaves borrowers to their mortgages, with no way out until they've been bled dry and are no good for anything else. And when the dust begins to settle, orchestrate the transfer of trillions of dollars of future housing wealth out of the hands of individual Americans to slumlord private equity real estate investors.
This is the clear and consistent policy designed and executed by Clinton-Bush-and Obama public servants.
Posted by: Mattie | August 22, 2012 at 04:57 AM
the criminogenic states of america
Posted by: chris m | August 22, 2012 at 09:17 AM
One must always remember that
1) the Tea Party came into being over the prospect of discriminatory mortgage writedowns (discriminating against those who pay their debts, who own their homes outright and who are tenants, all of whom add up to a clear majority of the electorate). And as 2010 showed, the Tea Party is pretty much entirely likely voters. So politically this is a tinderbox.
2) the vast majority of mortgage debt in the US is already held or guaranteed by the government. In a way, that makes change easy to implement, but it also poses a big problem for lawmakers, which is: the dollar cost of principal writedowns would show up in the federal deficit and thus they could be held accountable, as opposed to the usual DC preference of passing laws that impose costs on the private sector or are off balance sheet so that lawmakers aren't directly accountable.
Dean Baker wrote a piece earlier this week that laid out the reasons why principal writedowns wouldn't have much of a macro effect. In sum, "It is a tragedy for homeowners facing the loss of their homes and foreclosures can devastate communities, but it is not the story of the recession."
http://www.cepr.net/index.php/blogs/beat-the-press/still-getting-the-housing-bubble-wrong
That said, I proposed in the past on this site that the US set up a company that would offer every mortgagor the option to sell their house to the company for the first mortgage debt and lease it back for 10-15 years at rent = 2-3 % more than the interest on the government - guaranteed debt the company would issue to finance the purchase. That rate would presumably be similar to what 10-15 year government debt is carrying at the time of issuance and has no principal amortization so there would be a good monthly cash flow boost to participating households. The 2 - 3 % would cover the admin of the program and defray losses. The homeowners would also get a 5 year repurchase option at the mortgage amount that they could renew for a fee.
Second mortgages would be valued and the value (which is low) paid thru the Court of Claims as just compensation for the taking. The leases would be net leases with no government responsibility for the premises, and local laws protecting tenants against eviction would be preempted to protect the fisc against undue losses and bad faith by occupants. This approach would avoid most of the discrimination issue, because the offer is made to all mortgagors and there is little debt relief. Fiscal pain would be deferred because existing government backed debt would be oaid off at par, and hopefully the economy recovers enough to reduce those losses when they arise.
Posted by: mt | August 22, 2012 at 02:58 PM
Article on the same subject:
http://www.cnbc.com/id/48724024
The Obama administration didn't have to win on Bankruptcy mortgage cramdown - there were tough political opposition out there, specifically the small banks and credit unions. (Who could have been easily written out of the cramdown legislation - but inexplicably, were not.)
What deeply disappointed many people was Obama folding the tent (as some of the larger banks were starting to come around) killing the legislation.
All he had to do was hang in with the proponents, and if opposing forces killed the legislation, that would have been the end result that was almost expected. But, what actually happened was a pretty gutless flip-flop by Obama, at a time when the foreclosure crisis really needed much stronger medicine.
He put the dagger in cramdown, when he had previously supported it as a Senator. And he is justifiably held responsible for that decision.
Posted by: AMC | August 23, 2012 at 10:42 AM
Durbin's bill did exempt small institutions. They still opposed cramdown.
Posted by: Adam | August 23, 2012 at 11:11 AM
I generally agree with Dean Baker. I started calling "bubble" in 2005 and figured it would be a particularly vile one. I opposed the bail-out because: 1) instead of using money to prime the pump of the economy, it was being given to folks who were going to stuff it into a mattress; 2) those folks had caused the problem, and the money would help them keep on keepin' on; and 3) if the Roman Empire wasn't too big to fail, neither is Chase, and we have a much better idea of how to keep the financial system functioning than the Goths had of how to keep the Western Empire functioning.
But he loses me at a few spots here. First, while the collapse of the housing bubble triggered the current mess, and housing certainly can't get us back out, it was not the cause in any meaningful sense. The cause was a 30-year dismantling of the middle class engine of the economy. The bubble was a fraudulent prolonging of the middle class, but it's gone now, which is why housing won't lead us back out. How many people can take on a 15-year debt burden with a straight face, let alone 30?
Second, even accounting for the general hash that is the national, home ownership policy, he misses it. There are public benefits to a majority owner as opposed to majority renter society. If I still owned a house (We sold in 2005 when we moved.), I would be one of those "cheated" by mortgage write-downs, yet I would readily accept it over having my neighborhood turn into a collection of tenancies. Why? Self interest. Owner neighbors protect my property value and lifestyle better than absentee landlords. Further, would it really be a good idea for the government to facilitate a massive transfer of real estate wealth to the very folks who had created the bubble by means of the government's 20-year, regulatory nap?
Third, his bit on consumption as a share of disposable income is just wrong. He alleges the graph shows consumption is not low. Bollocks. Consumption has dropped drastically, it's just that disposable income has dropped even more so, so the percentage remains dangerously high. There's only so much that people can cut.
Finally, yes we need a new engine for the economy, but if he thinks international trade will do it, I'd like to know how. First, there are no local players and no small players in international trade. The shift to international trade in the 70s was the final nail in the coffin for small farmers, and anyone who thinks that was a good thing hasn't been paying attention. Second, we have too little to trade. Over 30 years ago, when I was still in the factory, I was the youngest there who could do machining. All the others were a generation older, and we weren't training their replacements. Even if we hadn't broken down our factories and shipped them to China, we have no one left to do the jobs machines can't. We've dismantled our ability to produce anything for trade.
So what then must we do? Ownership may be good, but is it feasible? It's obvious that there can be no return to the old methods since ultimately they could only be sustained, at least at the very fat and crucial margin, by daisy chain securitization and valuation fraud that need to be shot dead and not allowed to rise again. Perhaps homesteading, both rural and urban, needs to be part of it. We certainly need to reestablish our ability to produce real things and reacquire the abilities to do so. We need to end the myth that everyone will be at a desk. That myth is death to the economy and death to people who just don't work that way. If Switzerland and Grand Cayman want to have FIRE economies, let them. You can not base an economy of 300 million on document production.
Posted by: Knute Rife | August 24, 2012 at 01:43 AM
I love Knute
Posted by: Mattie | August 24, 2012 at 05:07 AM