Please Make This Happen

Filed in National by on August 6, 2010

I think it’s obvious by now that the Obama administration is going to have to find some creative ways to do more stimulus. The Republicans have blocked almost every effort to get help to the American people who are still suffering from the Bush recession. There’s a rumor being floated now that people could see a principal reduction:

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie.

This sounds really close to what we at DL were proposing in 2008. Instead of sending money to the banks, just reduce everyone’s mortgage debt. I’d prefer to see this kind of debt forgiveness for everyone, not just homeowners. But it’s a start!

Tags: , ,

About the Author ()

Opinionated chemist, troublemaker, blogger on national and Delaware politics.

Comments (18)

Trackback URL | Comments RSS Feed

  1. anon says:

    I was able to take advantage of the HARP program and reduce my monthly payments by $250 which definitely helps! It was disheartening though to know I have zero equity in a house I have lived in for 4 years since I bought at the height of the market. My second loan is thru citi, and despite being bailed out, I have been told they can’t refinance the loan–blah,blah,blah…This plan would definitely help people who work hard, pay their bills, and have watched the banks and automakers use federal funds to turn things around while not seeing home finances improve!

  2. dv says:

    we should just write a check to the banks at this fucking point.

  3. anon says:

    In an economy that is 70% consumer spending, it is blindingly obvious that from the very beginning the bulk of the stimulus and bailout money should have been direct payments (or writeoffs) to individuals, rather than to banks and corporations.

    Obama, Democrats, and Republicans alike join in the phony and ineffective goal of trying to stop the recession by “freeing up capital for investment.” This always translates into more money for the rich.

  4. Joe Cass says:

    I have a serious (for once) question:
    What would be the great danger in resetting the market? Say, I paid 70K for my home 13 years ago. Within the past 5 years it went up 20K and fell to 67K. Can we undo the bubble?
    Please keep in mind I am only edumacated up to a high school diploma. I is stupid.

  5. anon says:

    One way to look at financial markets is long-term vs. short-term money.

    Mortgage money is 30-year money which is long-term. If mortgage investors are stripped of their long-term profits by a government deus ex machina rather than by normal market forces, investors will be scared and pull their money out of long-term investments of any kind. Then there really will be a shortage of investment capital, which will lead to a whole different kind of recession.

    This is still not an argument against writing off the mortgages, though. The solution was always going to require a balancing of multiple evils.

    On the other hand, the other part of the problem is the industry found too many devious ways to turn long-term mortage money into short-term plays. Hopefully some of those doors are closed now with the reform.

  6. Joanne Christian says:

    I am so glad you posted something on this–my son called yesterday from Phoenix saying something about Obama signing an “executive order” in regards to some “debt forgiveness”-it was on talk radio of course, and we can’t find replications of it anywhere….

  7. anon says:

    Joanne – your son has fallen in with the wrong crowd. I’m so sorry 🙂

  8. Joe Cass says:

    Thank you anon. You’ve got me closer. Somebody has to take the loss. I can’t be in business very long taking the loss incurred by turning back the clock. How long can I be in business by foreclosing and having zero prospects for new buyers? My product is losing value every quarter anyway. How far does it go?

  9. Joe,

    What’s happening is we’re seeing a decline in housing prices after a huge bubble. What I think is going to happen is a long period of prices going nowhere until they get back to their historical value.

    There’s a good graph that shows what’s happening you can probably find it at the blog Calculated Risk (I highly recommend this blog if you want to learn about economics).

    The problem is that someone has to take a bath. Generally it’s been the consumers. The nice thing about debt forgiveness is this time it’s bankers taking the hit.

  10. Joe Cass says:

    And thank you UI, now I find the salt in my wound. You speak of historical value which I read as reset, and you re-affirm that there’s a soaking to be had. Thank for the instruction and the directions. And BTW, thanks for letting me post here. Do I get course credit?

  11. Joe, here’s a link to the graph I was thinking of. We’re actually closer to the historical value than I remembered but there’s still some adjustment to go.

  12. anon says:

    If this happens, Republicans will try to call this a cynical election ploy. But really, to influence the election it would have had to be done over a year ago – long enough for consumer spending to return and start producing jobs. It’s too late for that now. We’re going into the election with the unemployment numbers we’ve got.

    Blame Obama for taking care of bankers first.

    Seriously, I think this writedown is being floated because it is one of the last anti-recession arrows left in the quiver. The stimulus was partly wasted and now there ain’t no more.

  13. I agree with Josh Marshall’s take:

    These new and very sobering job figures force us to look back at the last two years, coming up as we are on the second anniversary of the Great Crash of 2008. People grouse a lot about the shortcomings of the Health Care Reform bill or Wall Street Reform. Myself, not so much. But that’s because my politics are a little different. From the perspective of someone who believes in single payer, certainly the Reform bill doesn’t go far enough. All that said, though, I think we’re seeing that the critical misjudgments — both political and in policy terms were made well, well before. All the way back to the first months of the administration, when Tea Parties were still about tea and the president’s approval ratings were still sky high. It was the Stimulus Bill. It just wasn’t big enough. Something a whole lot of people said at the time.

    Yes, in the world of cable talk shows we can have moronic discussions about whether the Stimulus Bill created the crisis (on some sort of time machine basis) or whether it actually created jobs or a whole bunch of other nonsense. But a lot of history and a growing number of studies of the last two years show very clearly that the Stimulus Bill worked really well at filling the demand gap created by the Crash — shaving down unemployment and creating substantial growth that otherwise wouldn’t have existed. What would have been catastrophe was pulled back to the merely terrible. That’s a fact for anyone who doesn’t have a political or monetary interest in saying otherwise. But it wasn’t enough.

    My question is do Democrats understand this? Does Tim Geithner and Larry Summers understand? Does Obama understand? It’s always been the economy. The longer the recession lasts, the worse it will be for Democrats.

  14. Joe Cass says:

    UI, when the bubble bursts. Is there a pop-up book? Jeez, thanks for pwning my weekend, except for tomorrow between 12pm-2pm: Carol Boncelet
    Statewide Volunteer Coordinator
    Chris Coons for Senate, http://www.chriscoons.com
    302-650-3225, 302-322-1140, carol@chriscoons.com

  15. cassandra m says:

    I think that most Democrats understand that it is the economy — I don’t think that they understand how aggressively they needed to act for how completely bad this meltdown has been. The stimulus was good, but not big enough and without enough hard projects. Whatever they were doing to address the detrius of the housing bubble — and those folks underwater — was completely inadequate to the magnitude of the problem. Paying attention to bank balance sheets at the expense of household balance sheets is pretty much at the core of every incumbent’s problem right about now.

    That said — I’ve been looking among my favorite Financial and Econ blogs for some discussion on this, because I can’t quite grasp how this would work. There is a similar program for FHA loans in the works, but it does require that that all lien holders agree to the restructuring. No one has addressed this yet, except for Calculated Risk who thinks that this is bollocks.

  16. anon says:

    Paying attention to bank balance sheets at the expense of household balance sheets is pretty much at the core of every incumbent’s problem right about now.

    Exactly. Republicans have scored a total victory in brainwashing the public that recovery always requires “freeing up capital for investment.” That is just more discredited trickle-down, yet we continue to hear it from D and R alike.

    Whatever they were doing to address the detrius of the housing bubble — and those folks underwater — was completely inadequate to the magnitude of the problem.

    The problem would be so much smaller if people had jobs so they could pay their mortgages, combined with modest writedowns. Both of which were largely absent from the stimulus.

    Instead we now have bailed-out investors sitting on their cash and stupidly waiting around for “housing markets to recover” (definition of insanity, doing the same thing and expecting different results).

  17. Joe Cass says:

    Is this Anon the same Anon all over this blog? The Anon that says it like it is? I’m gonna call you something different when I get clever enough to do so.
    Obama and the Dems are going to get SO hammered on this. Remember the elderly woman holding the sign “Keep your government hands off my medicare!”? Far be it from me to prescribe America’s cure, but the independents are going to see this as more gov’t over-reach. Just like Health Care Reform.
    “I’m drowning! I can’t swim! Stay the F away from me libtard!”

  18. ogottogo says:

    The purchase of a home has never been a promise of guaranteed returns. Buying a home (and subsequently sucking out the equity) has always been a game of “craps”. You roll the dice…you take your chances.

    Most of the time, homebuying has proved to be a good investment. Sometimes…not such a good investment. But now, Obama wants to change the rules of this “craps” game.

    It’s still “you roll the dice…”, but if you lose, the dealer doesn’t scoop YOUR chips off the table…he leans over and grabs the chips from the guy standing next to you. You get to keep playing…