Ezra Klein demonstrated how far he’s has to descend into the Humpty Dumpty world of words meaning just what he chooses them to mean in order to defend failed Administration policies.
Washington DC’s Baghdad Bob waded into the fray over a an unconvincing apology in the New York Times for Obama’s bank-friendly response to the mortgage crisis. It wasn’t hard to see this piece as dictation. While it’s now acceptable for the messaging apparatus to describe the policies as inadequate, the party line is lame: there was no support for bold measures and those big bad servicers were an insurmountable obstacle. Help me.
So what is Klein’s attempt at a save? He repeats the canard about the lack of political support for bold action and tries to fob this one off:
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.
Huh? Sorry, plenty of people vastly more credible than Klein had concrete recommendations at the time that would have been considerably better than Obama-Geithner program of coddling the banks.
For instance, Princeton economist Alan Blinder recommended a Home Owners Loan Corporation style mass refinance. She Who Must Not Be Named came out for it in her campaign. Joe Stiglitz, Paul Krugman, Nouriel Roubini, Mark Zandi, Jeff Merkley, Brad Miller, Ellen Seidman and others backed it. Krugman and Neil Barofsky have also argued the Administration could at a minimum have used $50 billion in unused TARP funds for mortgage mods. Adam Levitin (arguably the top US expert on mortgage securitizations) recently proposed a “bad bank” as a way to implement pooling and standardized restructuring of underwater mortgages. Top mortgage analyst Laurie Goodman has also long advocated principal modification, and she has established that they have much lower redefaults than other types of mortgage modifications.
Or how about using bankruptcy to write down mortgages to the current value of the house, something now done in bankruptcy for every type of collateralized loan except primary residences? Advocates of that approach included the Congressional Oversight Panel under Elizabeth Warren’s chairmanship, and more recently, the IMF. A bill passed in the House but was nixed in the Senate.
How about principal writedowns with shared appreciation mortgages, advocated by Andrew Caplan and Luigi Zingales? Even Greg Mankiw pointed to an approach suggested by John Geanakoplos and Susan Koniak a way to work around those pesky servicers. Dean Baker has pushed for an own to rent program.
This is far from a complete list. There were plenty of credible people who had concrete, specific proposals which would have done better than what the Administration implemented. When the benchmark is HAMP, which managed to make hundreds of thousands of borrowers worse off, or a mortgage settlement that institutionalizes servicer fraud and has already harmed mortgage investors helping pay for the settlement, it’s a low bar to beat.
So if you were honest about this issue, no matter where you draw the line, there were “credible” people who had proposals that were obviously better. And the evidence in part comes in the New York Times article that Klein mentions. It concedes that bankruptcy cramdowns might indeed have been a better idea than the Administration’s limp-wristed response. And don’t tell me Obama couldn’t have gotten this through. He was willing to whip personally to get Bernanke’s contested reappointment approved; he didn’t apply anywhere near that level of effort to this initiative. As Adam Levitin notes:
There’s no getting around the matter–the Administration truly flubbed things on housing policy, and its critics at the time said that the timid course of action would rebound to serious long-term economic problems and loom over the President as the 2012 election approached. It’s not like the Adminsitration wasn’t warned repeatedly, directly, and credibly. The Adminsitration instead chose to listen to a different group of “credible people,” and is paying the price.
But the interesting question is why is Klein pushing this barmy PR so hard? In part, he is relying on Democratic tribalism, that many of the people who were on the right side of this issue won’t call him out because no proper soi disant liberal would go after Administration lackeys when *gasp* Romney is in the wings. Elizabeth Warren clearly won’t, nor will Krugman. Stiglitz seldom deigns to respond to ankle-biters like Klein.
And the mortgage/housing issue is charged because, as Barofsky stressed, the Administration deliberately chose to use homeowners to foam the runway for banks. Damon Silver, associate general counsel for the AFL CIO and a member of the COP, identified what was really at stake in a 2010 hearing:
That of course means that it is a priority for Obama to obscure the fact that he chose the banks over ordinary citizens on housing, the single biggest source of wealth for most families. Reader Jill parsed it nicely:
Facts must be swept aside and replaced by “solving” the political problem. The problem is Obama was and is a lackey of the finacial industries. This truth must be erased from people’s minds…
The entire campaign coverage seems bent towards “solving” a political problem, not helping peope to understand what is really going on.
(Let’s not forget all those phone calls Obama made for TARP, his stripping out of real penalties even before he took office. Then hiring Geithner? Yep, he only wanted to best for the people!)
It would be great if we had campaign coverage that was about the reality we face, not about “solving political problems” of the elites. There’s a real difference in what that type of reporting looks like and an equally important difference in the effect it would have on an informed populace in a voting both and as a organized force of resistance to injustice.
So to defend this Administration’s sorry record, loyalists like Klein have gone from practicing sophistry to agnotology. In a perverse way, that’s encouraging, because it’s a sign that it’s becoming more difficult for the pundit class to deny the facts on the ground.
This post was originally published at Naked Capitalism and is reproduced here with permission.