August 2, 2012 at 17:41:47
By Richard (RJ) Eskow (about the author)
A recent
study
showed that more homes are underwater than originally believed. Roughly
16 million borrowers owe the banks $1.2 trillion (with a "t") for real
estate value value that no longer exists. We did some
projections
from that date to come up with the full scope of the problem and found
that more than 40 million people live in those homes, with total
mortgages outstanding of roughly $4.8 trillion.
Major principal reduction would reduce the monthly burden for
millions of families. It would free up tens of billions of dollars -- or
hundreds of billions -- reducing monthly payments substantially.
Struggling households would then spend most of that money for things
other than the unjust enrichment of wealthy bankers -- consumer goods and
services, mostly.
A broad principal relief plan would be the equivalent of a massive
stimulus program, one that could create millions of jobs and help
jump-start economic growth. And it would do it without costing the
Federal government a cent.
Stop That Bureaucrat!
The Administration's actions for struggling homeowners have generally
run the gamut from ineffectual or inept to downright cynical. Now the
White House says it wants to do more, but there's a problem: Edward
DeMarco. DeMarco's the Acting Director of the FHFA, the agency which
took control of government-backed lenders Fannie Mae and Freddie Mac
after their bipartisan-backed "privatization" led to an orgy of
executive greed and incompetence.
Whether out of ideology or bank coziness, DeMarco has refused every
entreaty for principal from detailed economic analyses to heartfelt
moral appeals. As Paul Krugman notes today in a post called "
Fire Ed DeMarco,"
DeMarco's latest move is outrageous. He's gone well beyond his agency's
mandate to justify his inaction. As Krugman says, "deciding whether
debt relief is a good policy for the nation as a whole is not DeMarco's
job."
DeMarco's now the Administration's target of choice, with Tim Geithner
playing
the "good cop" role. "I urge you to reconsider this decision,"
Geithner wrote to DeMarco in genteel public memo whose mildness brought
to mind Groucho Marx's remark to a gangster who was about to kill him:
"I'm not in the habit of making threats, Sir, but there'll be a letter about this in the
Times tomorrow morning!"
Bizarro Jimmy Stewart?
Can one bureaucrat's intransigence stymy an entire Administration?
If so then DeMarco's the Bizarro World version of Jimmy Stewart in
Mr. Smith Goes to Washington, tie askew and sweat pouring down his brow, staging a one-man holding action against decent government.
The so-called "independence" of regulators is a complex topic for
another day. What that usually means is that agencies become captive to
the industries they regulate, leaving them "independent" only from the
public that created them. But some doubt the whole story and say
DeMarco's merely a foil.
Yves Smith
says
"Obama has never been serious about helping homeowners," and nothing in
his Administration's performance refutes that. "DeMarco knows he won't
be fired,"
writes
David Dayen. "He's become the symbol in the story, and the
Administration is much more interested in symbolism when it comes to
housing."
Paul Krugman, on the other hand,
argues
that while "the uncomfortable truth... is that the administration --
and Tim Geithner in particular -- seemed indifferent or even hostile to
debt relief for a long time."
"That was a big mistake," adds Krugman. "But it's also in the past, and the administration has now seen the light."
So who's right ? The only one way we'll ever know one way or the
other is if the Administration does something meaningful about principal
reduction.
Quit "F"-ing Around
It can certainly do a lot more than write scolding letters. First,
the President can fire DeMarco. Actually he doesn't even need to
fire him, since he's only an
Acting
Director. He can simply make a recess appointment. The President
might even be able to fire DeMarco for cause: DeMarco has willfully
neglected a number of his agencies' responsibilities, which are clearly
laid out on Fannie Mae's website and include "Reduce the number of
foreclosures" and "Help families keep their homes."
Fire him for cause, Mr. President, and let the "CEO Candidate" try to
tell the people why you shouldn't. Then turn your attention toward
all underwater homeowners, not just those who would be helped by current proposals for FHFA-centered delinquent borrower programs.
That means addressing HAMP, the Administration's cynically-nicknamed "extend and pretend" program, so it provides relief
to more homeowners and no longer allows
banks to manipulate, mislead, and provide usurious rates to their victims.
The White House can work with the Consumer Financial Protection
Bureau or another appropriate agency to implement an aggressive "name
and shame" policy toward banks that continue to rip off their customers,
either through HAMP or independently.
The Administration must also shift the focus of its debt relief
efforts away from delinquent borrowers and begin promoting broader
solutions aimed at the wide universe of underwater homeowners. One of
DeMarco's few legitimate criticisms of White House policy hinges on the
fact that homeowners reap benefits from falling behind on their
payments, which could encourage more of them to do the same.
That's true. it also feeds into popularly-held biases against
principal reduction, and discriminates against those who have kept up
with their payments. Helping delinquent homeowners is arguably another
way of helping banks in the guise of helping ordinary people, whereas
broader relief might force the banks to step up.
Which leads to another important job for the President, one that
doesn't require the approval of any "F"-in' bureaucrat: He can make the
moral case for America's homeowners in a clear, strong voice. So far he
hasn't done that -- partly because some key members of his team buy into
the unfair notion that underwater homeowners, unlike Wall Street
bankers, don't deserve to be helped.
The Undeserving
You can skip this section if you like, but it might be worth a quick
refresher course on how we got here: A home is "underwater" when the
borrower owes more than the house is worth on today's market.
How did that happen to so many people? Banks knowingly pushed home
loans on people who couldn't afford the "balloon" payments hidden in the
fine print. Other borrowers were suckered by deceptive techniques that
ranged from general proclamations ("a home is your best investment") to
individual scams (i.e., using crooked adjusters to inflate the home's
values, burying unaffordable provisions in massive and unreadable loan
documents, encouraging the falsification of loan documents).
The banks then packaged these junk loans into "mortgage-backed
securities," often fraudulently misrepresenting them as higher-grade
investments. Then they made massive profits from the ensuing bubble in
housing value -- a bubble which, given their legions of paid economists
and analysts, they should have would collapse. Instead they kept
loosening their standards, writing riskier and risker loans, bundling
more and more loans into deceptive securities -- and collecting bigger
and bigger bonuses.
When the entire edifice came crashing down, the banks took trillions
in loan relief in a way that amounted to billions in outright gifts from
the taxpayer. They then entered into a massive wave of foreclosure
fraud to evict those same borrowers from their homes -- fraud which
included mass perjury, forgery, and other crimes. The executives who
had supervised this entire process all kept their jobs -- and their
bonuses.
But when it came time to offer principal reduction to their victims --
the chance to reduce the amount owed to something closer to market
value -- they and their Washington friends cried that this assistance,
which would provide great relief from the damage they inflicted on the
economy, would be "unfair."
The billionaire bankers and those who rescued them even said -- get
this -- that asking them to adjust these debts would "reward the
undeserving."
Brought To You by the Letter "F"
So there's something else the President can do without Edward
DeMarco's permission, and its importance shouldn't be minimized: He can
clearly and forcefully explain the massive injustice that's been done to
these homeowners. (See our "Moral Hazard Scorecard" for more
details.)
The President can demand justice. He can tell Wall Street he'll do everything in his power to restore justice -- and we mean
everything. Many people remember Franklin D. Roosevelt's heated war of words with Wall Street. ("
I welcome their hatred!")
Far fewer recall how bankers stung by FDR's rhetoric and fearful of
public rejection voluntarily pledged to do more -- and did. Rhetoric
matters.
With or without Edward DeMarco, the White House can take concrete
steps to help homeowners -- and it can use the President's "bully pulpit"
to fight back against the bullies. The only way homeowners will know
that the
Administration's doing something for them is when it does
something --
really does something.
If the President and his team move aggressively on principal
reduction, their actions won't just help underwater homeowners: they'll
also help the whole economy. That could prevent the President and his
party from getting the grade that all politicians dread at election time
-- an "F."
So there's something else the President can do without Edward
DeMarco's permission, and its importance shouldn't be minimized: He can
clearly and forcefully explain the massive injustice that's been done to
these homeowners. (See our "Moral Hazard Scorecard" for more
details.)
The President can demand justice. He can tell Wall Street he'll do everything in his power to restore justice -- and we mean
everything. Many people remember Franklin D. Roosevelt's heated war of words with Wall Street. ("
I welcome their hatred!")
Far fewer recall how bankers stung by FDR's rhetoric and fearful of
public rejection voluntarily pledged to do more -- and did. Rhetoric
matters.
With or without Edward DeMarco, the White House can take concrete
steps to help homeowners -- and it can use the President's "bully pulpit"
to fight back against the bullies. The only way homeowners will know
that the Administration's doing something for them is when it does
something --
really does something.
If the President and his team move aggressively on principal
reduction, their actions won't just help underwater homeowners: they'll
also help the whole economy. That could prevent the President and his
party from getting the grade that all politicians dread at election time
-- an "F."
http://www.huffingtonpost.com/rj-eskow/the-dumbest-bipartisa
Host of 'The Breakdown,' Writer, and Senior Fellow, Campaign for America's Future
The views expressed in this article are the sole responsibility of the author
and do not necessarily reflect those of this website or its editors.
http://www.huffingtonpost.com/rj-eskow/the-dumbest-bipartisa
Host of 'The Breakdown,' Writer, and Senior Fellow, Campaign for America's Future
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