The president can’t bring himself to put politics aside, aid the housing-market recovery, and generate stronger economic growth. Odd for an administration supposedly laser-focused on jobs.
Today’s evidence comes from two important news items. Early reports are that after a full-court press by the administration, government officials are securing a $25 billion deal with five major banks — Ally Financial, Bank of America Corp., Citigroup, J.P. Morgan Chase, and Wells Fargo — to settle claims of abuse in the foreclosure process. The $25 billion consists of $5 billion in penalties and $20 billion in aid to homeowners who are underwater in their mortgages, but current on their payments. The five banks involved are responsible for roughly one-half of outstanding home loans.
Viewed in isolation, the pact represents an important step forward. The industry has the opportunity to put whatever abuses occurred in the rearview mirror, obtains a bit of legal certainty — at the price of the largest check since the tobacco settlement — and has improved incentives to move ahead in mortgage finance.
The economy would ultimately benefit tremendously as the long-delayed workout of excess supplies can finally move forward. Once that adjustment has cleared, housing can resume its traditional role as a key cyclical industry in driving a more rapid pace of economic growth and improved payroll employment.
So far, so good.
Unfortunately, one can expect that the administration will not see it this way moving forward. Instead, it will portray the deal as a mere “downpayment,” emphasize that only 1 million homeowners will benefit, and argue that more help for underwater homeowners is needed.
That is inconsistent with putting things in the rearview mirror and getting on with a much-needed housing-market adjustment. And legal certainty is at risk as well, as at the same time the Securities and Exchange Commission has announced that it will sue many of the same banks over the sale of bonds linked to subprime mortgages during the crisis in 2007–08.
Two steps forward, one step back.
The macroeconomy is recovering, despite the hostile policy environment. It would benefit enormously from a stronger housing sector, an objective within reach if the administration could resist the political temptation to rouse its base with finger-pointing and lawsuits. Alas.
Interesting that the author accuses the president of being unable to put politics aside and then resorts to pure politics. He indicates the administration does something good, but then is of course sure that the administration will in the future do something to mess it up, so let's go ahead and trash them for something they have yet to do.
Good thing Mr. Holtz-Eakin isn't motivated by politics.
Reply to this commentLinkReport AbuseI'm guessing you didn't actually bother to read the article. The author pointed to something the adminstration has already done, when he talked about them doing something bad.
Maybe if you got the politics out of your eyes.
Reply to this commentLinkReport AbuseUnreal -
So - these banks get fined and restricted on what they can do if they don't lend to borrowers who are bad credit risks...and then when the Fed's loosen underwriting standards to get more borrowers who are credit risks the ability to borrow mortgages...and the private sector follows that direction........and then the whole situation blows up.....now the banks and lenders are getting fined for loaning money to the same people the Feds used to fine them for not lending to...and who the Feds actually encouraged lower underwriting standards (on what the agencies would buy) for. AND THE GUYS WHO LARGELY INSTIGATED THE PROBLEMS GET THE REFORM BILL NAMED AFTER THEM (the reform bill that will make the structural problems worse...e.g. reforms that reform the wrong problem..but exacerbate the real problems).
That's insane. You'd think that a banker would stand up and talk about it - but the Federal government has then in hand now (too big to fail).
The icing on the cake is that the likely reason for the Feds lowering their underwriting standards was because of liberal land use policies - environmental restrictions, impact fees to raise the price of property, etc. That's why RE values in CA are so out of whack that a shack is very expensive.
Reply to this commentLinkReport AbuseWhat an unmitigated piece of hackery, this post is. It ignores over the fact that this 'deal' lets the banks off of the hook with pretty much zero penalty, won't do much to help people who were actively harmed by perfidy on the part of the banks and mortgage companies, holds no individuals responsible for their affirmative decision to break the law, and does nothing to prevent any of it from happening again.
Please read here for an in-depth explanation as to why this deal is terrible for American homeowners, and does nothing to hold any bank responsible in any way:
External Link
Nothing more than what I expect from Mr. Holtz-Eakin, however, who can always be trusted to provide the shallowest of economic analysis, wrapped in a bloody shirt.
Reply to this commentLinkReport Abuse1) You actually cite a website called "NakedCapitalism" as a source of honest, believable information.
2) You honestly believe that $25Billion is next to nothing?
3) You honestly believe that it should be against the law for banks to loan money to people who want to borrow?
And you honestly wonder why most people here laugh at you?
Reply to this commentLinkReport Abuse1) Yes. Yves Smith knows more about Capitalism than you ever will.
2) Yes - it is next to nothing. The banks get more put-back from F/F every quarter than this. It is nothing to them at all.
3) No - this has nothing to do with what I wrote at all.
4) You're a fool, Mark. Don't talk about economics when you know nothing at all about the subject.
Reply to this commentLinkReport AbuseA capitalist believes that a person's actions will line up with his or her incentives. Obama has a huge incentive to improve the economy and the Republicans have an equally large incentive to hinder it. That's why Obama wants stimulus and Republicans want default.
It doesn't make sense that Obama would deliberately do something for "political reasons" that he thinks will harm the recovery.
Reply to this commentLinkReport Abuse