Help Underwater Homeowners? No Can Do!

Source: Decline of the Empire

The grim statistics are there for everyone to see if they care to look. 25% of those with a mortgage are underwater, meaning their mortgage debt exceeds the value of their house. Despite all the foreclosures we’ve had up to now, there are an estimated 5 million more in the pipeline. Have national average house prices hit bottom? No one really knows.

The world appears to be a complicated place, but at a useful level of abstraction, it is not. When Hopey-Changey was elected, among his first hires were Tim Geithner and Larry Summers. Why these guys? Why not some other guys? After all, both Geithner and Summers were former (Larry) Rubinites who had pushed for the market deregulation which led directly to the huge housing mess we have today.

The banks financed Hopey-Changey’s election, and Geithner and Summers were hired to protect banking interests. The world is simple, not complicated. People make it complicated by ignoring the fact that our government is corrupt, elites get what they pay for, and so on. In short, they assume that politics is what appears to be instead of what it truly is.

In yesterday’s Washington Post, Zachary Goldfarb published a story with the unwieldy title Obama’s efforts to aid homeowners, boost housing market fall far short of goals. The story makes it completely clear that Geithner and Summer, but especially Geithner, did their job well, successfully blocking all efforts to restructure the debt of underwater mortgage holders. The problem is that such restructuring requires the banks to take and acknowledge losses on the bad loans they made, which in the twisted logic of the Empire, is not perceived to be in the best interests of … the banks, it is forbidden, verboten, not allowed.

You see, we’re talking about the interests of the banks here, not the interests of millions of underwater Americans. Simple, not complicated. If you want to read about the abominable failures of the Obama administration and the role of Geithner in all this, read Goldfarb’s article. Today we want to understand apparent complexity and the confusion arising from it. Salon’s Andrew Leonard is a staunchly partisan supporter of the Democrats and a big fan of Hopey-Changey—Republicans are evil, Democrats are not. In this regard, Leonard is the King of Confusion. Here he is talking about the housing mess.

Moments before a conference call in which White House officials were set to explain their new plan to resuscitate the nation’s morbid housing sector, Dan Pfeiffer, President Obama’s communications director, got on the line and debuted the latest administration jingle: “We can’t wait.”

The gist: Since congressional Republicans are blocking any action on the economy, Obama has been forced to take matters into his own hands and do what he can via executive action. Case in point: the administration’s plan, announced Monday, to make it considerably easier for homeowners to take advantage of current phenomenally low interest rates and refinance their mortgages.

“Where Congress won’t act, this president will,” said Pfeiffer. “Every week going forward, you can expect the president to be making executive actions.”

So what took him so long?

… Nobody comes out of Goldfarb’s story looking good, but Timothy Geithner looks especially bad. The responsibility for the failure to move aggressively to help struggling homeowners — whether those who were simply “underwater” on their mortgages (meaning that their houses are worth less than the their outstanding mortgage balance) or those who were actively facing foreclosure — gets blamed fairly definitively on the treasury secretary. Geithner was consistently more worried about the health of the financial sector than he was about the housing sector and actively discouraged Obama from diverting resources toward helping homeowners.

The administration ended up spending only a fraction of the $50 billion it had allocated for homeowner assistance, and to date, reports Goldfarb, “administration programs have permanently reduced the debt of just one tenth of 1 percent of underwater borrowers.”

Against this context, the refrain “We can’t wait” doesn’t just ring hollow — it actively begs for mockery. The housing sector is the beating heart of the American economy, and until it recovers, economic growth will be minimal to nonexistent. Since the day President Obama took office, economists have pointed to the housing sector as a critical target for economic policy. There are still as many as 5 million foreclosures coming down the pike.

But for three long years, the Obama administration has dragged its heels on crafting and executing a meaningful housing sector rescue plan. Some of the most powerful men in the White House — Geithner, Larry Summers, Austan Goolsbee — are reported to have expressly opposed any significant steps toward homeowner debt reduction.

We can’t wait? What else have we been doing? There’s an immense and tragic irony underlying all this. Goldfarb reports that White House reluctance to divert more funds to helping homeowners was in part due to the fear that the general public would feel that it was unfair to help out some homeowners on the taxpayers’ dime…

… the Obama administration should have made measures like this a much higher priority three years ago. The optimistic, forgiving approach to take toward the new initiative is that it might indicate that the Obama administration is finally getting its act together and tackling the real problems.

But it’s much easier to look at the plan and say “too little, too late,” than to nod along with the mantra “we can’t wait.”

[Image above, left-to-right: Summers, Orszag, Geithner and Romer]

What is the immense and tragic irony Leonard has overlooked? I fear it is so blindingly obvious that it is far too easy to miss. Obama hired these men to do a job—in part, to protect the interests of the banks—and they did it well. This was not a failure of policy. It was due to corrupt intentions. It was payback for campaign donations received. It makes little difference whether Geithner is aware of his not-so-hidden agenda to protect the banks. People internalize a certain set of values which benefit their patrons and themselves. They can rationalize away this obvious bias all day long.

We might call it the fallacy of projected sincerity, the attribution onto policymakers of an intention to serve the public when the reality was that they had no such intention, especially if it conflicted with the interests of the banks. (This human fallacy is of course far more general than this one case indicates.) Why is there a new, expanded plan to help homeowners to refinance now? Because we’re “deep” in the election cycle in October, 2011. After all, the presidential election is only 13 months away.

The most conspicuous immense and tragic irony in Goldfarb’s story is that underwater mortgage-holders could not be helped because of the “moral hazard” of aiding some homeowners and not others. There certainly wasn’t any “moral hazard” in bailing out a banking system which offered credit to anybody standing upright and breathing.

This must be a tough time for Andrew Leonard. The new jingle “we can’t wait” doesn’t just ring hollow — it actively begs for mockery. The Emperor has no clothes. But Leonard has a choice. He can grow up, and see thing as they are, or he can continue to write confused nonsense for Salon. Dealing with reality is a long, hard road, discouraging to those just starting out. But it’s good to know that others have traveled it before.

Read more at Decline of the Empire