Monday, October 24, 2011

Heckuva Job

We tried to warn them...

Generally, the Treasury secretary did not regard direct homeowner aid as the best use of taxpayer dollars. He favored expanding the economy by spending money on construction projects or programs to keep teachers and other workers employed, which would help the housing market. In meetings, Geithner would tell the president that if he suddenly had $100 billion more to spend, he would never advise spending it on housing.

Geithner, who was also the point man for stabilizing the financial markets, worried that some steps to help homeowners could pose risks to the financial system, causing more harm than good.

In 2009, for example, Obama officially supported a bill in Congress that would have made it easier for homeowners to obtain mortgage relief in court — a “stick” that would pressure banks to generously reduce homeowner payments.

Behind the scenes, Geithner had grave concerns that if courts could change the terms of mortgage loans after the fact, banks would be less likely to lend, reducing the availability of credit in the financial system.

Ultimately, political advisers decided the bill was unlikely to overcome the opposition of banks, Obama did not fight for it, and the bill died. There would be no stick.

I don't know how they expected the economy to fix itself with a destroyed residential construction sector and millions of undewater homeowners unable and rationally unwilling to pay their mortgages.