Making Excuses: HAMP v. HOLC
[Some argue that] Obama and the Democrats could have done a lot more to improve the economy. But I'm not convinced of that. [. . .] The only other thing I can think of that the administration screwed up seriously is mortgage reform. Again, though, that would have been politically difficult even if they had played all their cards perfectly. Like it or not, the American public hates the idea of seeing their neighbors get bailed out from stupid mortgages. It makes them feel like saps: we scrimped and saved and bought a house we could afford and we're getting nothing. Joe and Betty down the street lived the high life, took out a NINJA loan they knew was way more than they could afford, and now they're getting a taxpayer-funded bailout and living easy. That's not a vote getter.
[. . . P]eople are mostly reacting to actual pain, and there's surprisingly little Obama could have done about that.
Matt Yglesias seconds this argument that the President was impotent:
Kevin Drum hits the nail on the head when it comes to the politics of averting foreclosures, something I think a remarkable number of progressive bloggers overlook[. . . .] It’s probably even worse than that. Across the board principal modification would have undone some optimistic accounting lurking on bank balance sheets and required additional government capital injections (read: bailouts) of large financial firms. I’m resolutely pro-bailout, of households and banks alike, but the public feels differently.
Interesting how the bank bailouts went through and bank friendly policies have been followed by the Obama Administration despite their unpopularity but homeowner friendly policies were just too tough politically no? FTR, I support and supported TARP, but not the no strings TARP that was executed by the Obama Administration (in my view the saved banks should have been required to own up to their losses, engage in mortgage modifications and generally loosen credit. Just as this was no time for fiscal restraint, it was no time to tighten credit.)
In the end, what was the best political move for the Obama Administration in the first hundred days? The answer seems obvious to me - enact and execute policies that would do the most to lift the economy. That simply didn't happen. The best example is the egregiously bad HAMP policy. The problem with HAMP was similar to that the entire Obama Administration policy towards the banks has- a dependence on the banks themselves. HAMP did not and will not work because in order for it to work, the banks must take a hit voluntarily. They will never do that.
What Drum and Yglesias fail to acknowledge is that the Obama Administration had no need for Congressional action with regard to HAMP (or a potential HOLC.) They had freedom of action and acted with egregious incompetence and put HAMP into place.
By contrast, in 1933, FDR enacted HOLC (PDF):
During the initial lending period—from June 1933 to June 1935—the HOLC received 1,886,491 applications for $6.2 billion of home mortgage refinancing, an average of $3,272 per application. According to estimates in the present study, HOLC refinancing was requested for about 40 percent of all mortgaged properties of qualifying size, value, and location, and for about one-fifth of all the nation's nonfarm, owner-occupied dwellings. Nearly half the applications, however, were withdrawn or rejected. Roughly, one million refinancing loans totaling $3.1 billion and averaging $3,039 per loan were made, 70 percent of which were made during the twelve-month period beginning in March 1934. For the country as a whole, owners of about one out of ten nonfarm, owner-occupied dwellings (one- to four-family structures) and one out of five mortgaged dwellings received HOLC refinancing aid. Seventy-five percent of the loans were for less than $4,000 and amounted, on the average, to 69 percent of the HOLC appraised value of the property.
There was no political reason, none whatsoever, that instead of HAMP, the Obama Administration did not instead create a new HOLC. The Obama Administration, guided by the bumbling incompetent Tim Geithner, chose to coddle the banks instead.
Drum and Yglesias' excuse making for this failure is utter nonsense.
Speaking for me only
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