More On How Tim Geithner Contributed To The Destruction Of America

“I will change our bankruptcy laws to make it easier for families to stay in their homes,” [Barack] Obama told supporters at a Colorado rally on September 16, 2008, the same day as the bailout of AIG. [. . .] Obama promised to change that, describing it as exactly “the kind of out-of-touch Washington loophole that makes no sense.”

You know about Tim Geithner's disgraceful tenure as head of the New York Fed. You know about Tim Geithner's disgraceful performance on the 2009 stimulus. You know about Geithner on AIG, TARP and HAMP. Now, via Atrios, Pro Publica reports on Geithner's malfeasance on bankruptcy cramdown for primary residences:

W]hen it came time to fight for the measure, he didn’t show up. Some Democrats now say his administration actually undermined it behind the scenes. “Their behavior did not well serve the country,” said Rep. Zoe Lofgren (D-CA), who led House negotiations to enact the change, known as “cramdown.” It was “extremely disappointing.”

Tim Geithner pushed for the disastrous HAMP program instead (HOLC was not even discussed.):

[T]he administration has relied on a voluntary program with few sticks, that simply offers banks incentives to modify mortgages. Known as Home Affordable Modification Program, or HAMP, the program was modeled after an industry plan. The administration also wrote it carefully to exclude millions of homeowners seen as undeserving.

HAMP is, of course, an abject failure. To have ANY chance of working, a stick needed to be applied to the banks:

To force those servicers to modify mortgages, advocates pushed for a change to bankruptcy law giving judges the power not just to change interest rates but to reduce the overall amount owed on the loan, something servicers are loath to do. [. . .] They thought cramdowns would serve as a stick, pushing banks to make modifications on their own.

The Obama Administration worked against this provision despite its public pronouncments:

In the fall of 2008, Democrats saw a good opportunity to pass cramdown. The $700 billion TARP legislation was being considered, and lawmakers thought that with banks getting bailed out, the bill would be an ideal vehicle for also helping homeowners. But Obama, weeks away from his coming election, opposed that approach and instead pushed for a delay. He promised congressional Democrats that down the line he would “push hard to get cramdown into the law,” recalled Rep. Miller.

Four months later, the stimulus bill presented another potential vehicle for cramdown. But lawmakers say the White House again asked them to hold off, promising to push it later. An attempt to include cramdown in a continuing resolution got the same response from the president.

"Manana" from the Obama Administration means "never:"

Privately, administration officials were ambivalent about the idea. At a Democratic caucus meeting weeks before the House voted on a bill that included cramdown, Treasury Secretary Tim Geithner “was really dismissive as to the utility of it,” said Rep. Lofgren.

[. . .] Treasury staffers began conversations with congressional aides by saying the administration supported cramdown and would then “follow up with a whole bunch of reasons” why it wasn’t a good idea, said an aide to a senior Democratic senator.

Homeowners, Treasury staffers argued, would take advantage of bankruptcy to get help they didn’t need. Treasury also stressed the effects of cramdown on the nation’s biggest banks, which were still fragile. The banks’ books could take a beating if too many consumers lured into bankruptcy by cramdown also had their home equity loans and credit card debt written down.

(Emphasis supplied.) Tim Geithner has always been the banks' creature.

And of course, the timidity of the Obama Administration is now so commonplace that we do not even remark on it. It was disastrous here. Consider the Obama Administration's fear of Rick Santelli:

The program was further limited by the administration’s concerns about using taxpayer dollars to help the wrong homeowners. The now-famous “rant” by a CNBC reporter, which fueled the creation of the Tea Party movement, was prompted by the idea that homeowners who had borrowed too much money might get help.

Candidate Obama had portrayed homeowners in a sympathetic light. But the president struck a cautious note when he unveiled the plan in February 2009. The program will “not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans,” said Obama. “It will not reward folks who bought homes they knew from the beginning they would never be able to afford.”

The destruction of America continues apace:

A lot of the program is focused on “weeding out bad apples,” said Steven Horne, former Director of Servicing Risk Strategy at Fannie Mae. “Ninety percent is not focused on keeping more borrowers in their homes.”

And not only do we have a housing crisis because of Tim Geithner and Barack Obama's refusal to take on the banks and make them face the music, the American economy is now in a semi-permanent downward spiral. Just wait until Grover Norquist gets his way this year.

Speaking for me only

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    Even though I figured that's what was going on (5.00 / 4) (#1)
    by ruffian on Fri Feb 04, 2011 at 09:56:55 AM EST
    Seeing the narrative is even more infuriating.

    It's like trying to cure cancer while ignoring the cancer cells.

    Good analogy. (5.00 / 1) (#5)
    by Buckeye on Fri Feb 04, 2011 at 10:22:22 AM EST
    Obama (5.00 / 5) (#2)
    by Ga6thDem on Fri Feb 04, 2011 at 10:12:45 AM EST
    working against something behind the scenes and it being the exact opposite of what he says has been his MO since the beginning. You certainly present a ton of evidence here as to why Obama's word on any subject is no good.

    Preview (5.00 / 1) (#3)
    by cal1942 on Fri Feb 04, 2011 at 10:17:57 AM EST
    opposed that approach and instead pushed for a delay. He promised congressional Democrats that down the line he would "push hard to get cramdown into the law,

    A preview of what was to come.  He'll raise taxes on the wealthy down the line in 2012 instead of 2010.

    Oh well... (5.00 / 1) (#7)
    by inclusiveheart on Fri Feb 04, 2011 at 10:30:31 AM EST
    So it goes.

    American spiraling down Grover Norquist's bathtub drain...

    I think the thing that infuriates me the most (5.00 / 1) (#10)
    by Anne on Fri Feb 04, 2011 at 10:36:30 AM EST
    is the sense that these people would rather see millions of people lose their homes, see entire neighborhoods abandoned, see a glut of homes on the market whose titles are of questionable status, than risk helping anyone who might not "deserve" it; it would be like having a judicial system driven by a presumption of guilt so as not to risk that even one guilty person would go free.

    Circle the wagons.  Protect the banks and Wall Street at all costs.  Keep those fat paychecks and bonuses coming.  Reward bankers for their predatory, deceptive, fraudulent, behavior no matter what.

    And I thought the Bush years dragged on, but these last two years have seemed like 10 - and we have two - possibly six - more years ahead.  I'm just sick.

    Somewhat related, but tangentially so, I read this at naked capitalism this morning and thought it could have been written by Tracy:

    I must digress a tad by giving The Daily Capitalist's translation of Bernanke's remarks:

    Since August when we began to flood our primary dealers in Wall Street with newly printed money the market went up because they used the money to buy financial products, including stocks. We are trying to cause price inflation because the majority of the FOMC is concerned about price deflation. If we cause price inflation then we will fool everyone into thinking that because prices are going up, such as in the stock markets, that it is real growth even though it's just price inflation. Even better the national debt can be paid down with cheap dollars. Yields on Treasurys initially went up because the bond vigilantes aren't stupid: they know it will cause inflation so they wanted higher yields. But, ha, ha, the Euro went into the tank because of the PIIGS and money flooded back in to the US and drove Treasury yields back down, for the time being. Screw the vigilantes. The same thing happened when we tried QE1, but as we all know, that failed and we are desperately trying again because we don't have too many arrows left in our quiver. Hey, if it had worked, would we be doing QE2? We are desperate because if unemployment doesn't come down, the Obama Administration will be screwed and I'll lose my job. We are ready to do QE3 because we don't have a clue what else to do.


    It's depressing (none / 0) (#11)
    by Militarytracy on Fri Feb 04, 2011 at 10:50:21 AM EST
    The Fed is talking about a Quantitative Easing 3 now.  They really think that if they can keep the stock market up, that somehow that wealth will create new jobs.

    They have destroyed accountability and risk in the markets though too attempting to keep the markets up.  People are literally buying in now because it looks like you can't lose because the market is not allowed to correct and it is preached that if it corrects we will all die.

    It's like all they have left now and what takes up all of our time, energy, and wealth is to keep plates at the end of sticks spinning in the air.  I read that because the non farm payroll is so bad this month.....indicating that people do not have money to buy things and we are not recovering (I can't believe they ever thought we really were)....that the Fed is probably going to pursue QE3 to attempt to create jobs even though QE1 didn't do that and QE2 isn't either.


    This is from 3 years ago and (5.00 / 1) (#13)
    by Harry Saxon on Fri Feb 04, 2011 at 11:07:09 AM EST
    summarizes the situation using the argot of New York City:

    For years and years a minority of savvy people would ask themselves, "Just how long can this go on?" The "this" was lending people money that they were not earning enough to repay. Now we know. Now the question is not how long can this go on but how come it went on so long.

    Lending money to dubious risks is hardly something invented in the past 10 or 15 years. Until recently, however, the rule was that high risks paid high interest rates. The payday loan industry operates on that basis, as do the gangsters who lend to people gambling on sporting events. For that class of borrowers failure to pay may also entail knee-capping or finger-smashing.

    Knee-capping, however, does not necessarily get a gangster/borrower his money back. Such lenders draw a line at proven deadbeats. They are denied loans.

    Thus, in a crude way, the nether regions of the credit system have been self-regulating. It does not take government regulation for some people to figure out that if you cannot afford the interest, don't borrow the money; or, conversely, if the applicant looks like a really bad risk, regardless of the interest, don't make the loan. Proper assessment of risk ensures that the guys with the baseball bats, or the slightly more respectable payday lenders, do not suffer fatal financial bubbles.

    In our case, the simple set of relationships obtaining in the netherworld of credit has been disrupted over the years. The first disruption, and least important, was setting price controls on money via the usury laws. Controls on the price of money--that is, interest--are easily evaded but they foster a climate of dishonesty, black marketeering and forms of bookkeeping that defeat transparency. It is surprising that Hillary Clinton, with her oft-boasted experience, did not understand what she was advocating when she came out in favor of putting a cap or price controls on mortgage interest rates.

    The disruption of self-regulation in borrowing and lending in the upper world of finance begins with the government policy of promoting low interest rates. The rates were not forced down by promulgating price control rules but by making money cheap, by, in effect, printing a lot of it. The connection between high interest rates and high risk was broken. When self-regulation is working, only good risks get low rates; now everybody got them.

    Click or NY Observer Me

    The other part of it (none / 0) (#14)
    by ruffian on Fri Feb 04, 2011 at 11:23:22 AM EST
    was what enabled the banks to still make a lot of money with low interest rates - grossly (fraudulently) inflating the principal of the loan.

    Even with the foreclosure rates at record levels, many more people are still paying on their inflated mortgages. The bubble has not really popped for the banks, only for the poor slob trying to get out from under his house.


    The latest % I read (none / 0) (#17)
    by Harry Saxon on Fri Feb 04, 2011 at 11:52:11 AM EST
    was that one out of 4 homeowners are underwater in owing more on their house than what it's worth, and if I had refinanced in 2005 or 06 I could've been one of them myself facing these vexing challenges:

    1.  Stay for the long haul, even though it might mean your house will be a good investment only for your heirs, if any.

    2.   Strategically default, take the loss on the credit record, and give up on homeownership for a few years to a decade from now.

    Neither comes in a cherry flavor.

    With my usual great timing (none / 0) (#19)
    by ruffian on Fri Feb 04, 2011 at 12:09:34 PM EST
    I move to the Orlando epicenter of the crisis in 2005. Never intended for this to be my retirement home, but it will end up that way unless I manage lo pay the loan down to market value before then. I probably won't default, but I am permanently out of the housing and home improvement markets so will not be helping that segment of the economy. Plenty of people like me just in my little neighborhood, much less state.

    That number (1 in 4) (none / 0) (#20)
    by me only on Fri Feb 04, 2011 at 12:10:24 PM EST
    is not of homeowners.

    It is homeowners with a mortgage.  Big difference.


    Well sure- you're not underwater if you don't have (none / 0) (#21)
    by ruffian on Fri Feb 04, 2011 at 12:15:43 PM EST
    a mortgage, by definition. Not a homeowner either, actually,

    I mean you're not really a homeowner if you (none / 0) (#22)
    by ruffian on Fri Feb 04, 2011 at 12:17:22 PM EST
    have a mortgage, strictly speaking. Homedebtor.

    What do you mean (none / 0) (#23)
    by me only on Fri Feb 04, 2011 at 12:18:12 PM EST
    you are not a homeowner if you don't have a mortgage?  

    Typo, see above! (5.00 / 1) (#26)
    by ruffian on Fri Feb 04, 2011 at 12:25:37 PM EST
    well, unless you pay cash for your house (none / 0) (#24)
    by Dadler on Fri Feb 04, 2011 at 12:23:52 PM EST
    and who does that? people with so much money they have no reason to be worried about money -- except to the extent that their huge pile of it might become a little less huge. and for many wealthy, i guess, that is just a tragic and horrifying proposition.

    Or unless, you don't borrow against (5.00 / 1) (#27)
    by me only on Fri Feb 04, 2011 at 12:35:38 PM EST
    your house like an ATM.  You know those 30 years mortgages, surprise, surprise 30 years later they magically disappear.  Amazing.

    Who used who? (5.00 / 2) (#42)
    by mmc9431 on Sat Feb 05, 2011 at 08:14:20 AM EST
    I didn't use my house as an ATM. I used it for the security for my retirement. Just as millions of American's have done for generations.

    The banks used my mortgage and the world economy as a poker chip and they lost.

    The difference is that they were bailed out and rewarded. I was left with a house that has fallen in value of over 35%.

    I'm retiring in three years. The equity of my home was my pension fund. So much for careful planning.

    There's absolutely no way that the housing market is going to rebound in time to be of any help to me or millions of others.

    I get very upset when the right wing tries to blame everything on the victim. (And we all were victims of the economic meltdown). The premise of leaving business alone to do business is an outrage.

    In spite of the Supreme Court ruling, corporations are not people. They have no conscience. They are totally profit driven and, as we've seen repeatedly, would sell us all out for a quick kill in the market.


    Corporate personhood (none / 0) (#44)
    by me only on Sat Feb 05, 2011 at 04:42:05 PM EST
    dates to English common law.

    35% of what you paid for it?  Or 35% of what you thought it was worth 4 years ago?


    Not quite equal (none / 0) (#45)
    by mmc9431 on Sun Feb 06, 2011 at 08:48:31 AM EST
    Since corporations are people just like us, then they shouldn't be given special preference in the bankruptcy courts. Judges have the power to adjust their mortgages.

    As far as the 35% goes, I live in an area that was not part of the bubble. Our property values didn't explode as in the west or south. But we are experiencing the collapse anyway. I bought my house 7 years ago, so yes, it is my money that was flushed down the drain. $90,000 may only be an allusion to you, but to me it is cold hard cash that I no longer have.


    agreed, didn't think we were talking... (none / 0) (#29)
    by Dadler on Fri Feb 04, 2011 at 02:06:34 PM EST
    ...people who had owned the same place for decades, but more those who had purchased, say, in the last seven or eight years.  my bad.  you are certainly right.  the percentage of people able to do that, however, is going to sink to near zero as job security has become, for almost everyone, an anthropological relic.  

    Job Security (none / 0) (#30)
    by me only on Fri Feb 04, 2011 at 02:27:50 PM EST
    meaning what exactly?  My buddy in Atlanta has changed jobs 4 times since 2000.  He hasn't moved.  I am not sure that qualifies as job security.

    So even without "job security" he has 10 years of paying on the mortgage.


    Well, (none / 0) (#31)
    by Ga6thDem on Fri Feb 04, 2011 at 02:35:11 PM EST
    first of all, a lot of people are going to have to move to get or keep a job so that's going to affect the housing situation somewhat. I mean if you have to dump your current house you're probably not going to have the money for a down payment on the next house. Secondly, the people who are renting are not going to venture into the housing market according to a friend of mine in real estate. No one wants to be stuck with a mortgage when they might lose their job.

    This was also an argument (5.00 / 1) (#33)
    by Anne on Fri Feb 04, 2011 at 03:19:25 PM EST
    for single-payer, ending the employer-based model of insurance coverage: to give people more flexibility in the job market, freeing them from the benefits handcuffs.

    Wasn't uniquely American enough, I guess...


    Apparently (5.00 / 1) (#40)
    by Ga6thDem on Fri Feb 04, 2011 at 06:08:12 PM EST
    "uniquely American" means that you have to decide whether you are going to have healthcare or insurance or a house since insurance costs as much as a house payment.

    2007 Community Survey (none / 0) (#25)
    by ruffian on Fri Feb 04, 2011 at 12:24:59 PM EST
    banking (5.00 / 2) (#16)
    by dandelion on Fri Feb 04, 2011 at 11:41:47 AM EST
    I think it's pretty significant that the Dems chose Charlotte for the next convention.  A non-union state and a city that is headquarters to major banks -- if they couldn't quite pick Wall Street, Charlotte is probably the next best place.

    Separated at birth: Geithner and Eraserhead (5.00 / 2) (#18)
    by Dadler on Fri Feb 04, 2011 at 11:54:44 AM EST
    Housing is holding back the economy (5.00 / 1) (#28)
    by MKS on Fri Feb 04, 2011 at 12:37:38 PM EST
    In addition to the millions of homeowners who are adversely affected directly, the housing troubles prevent the economy from moving forward.

    People are burning off debt rather than spending, and those who do have jobs, will not spend if their home is underwater.

    The economy cannot fully recover until the housing issue is solved.

    Exactly (5.00 / 1) (#32)
    by ruffian on Fri Feb 04, 2011 at 02:43:35 PM EST
    We cannot claim we are serious about economic recovery without trying to address housing. Either address housing, or do a massive public works initiative to replace those housing related jobs. The attempts to tinker around with other issues only empower those who want to talk about something else, like Norquist.

    Barack Obama (5.00 / 7) (#34)
    by BDB on Fri Feb 04, 2011 at 03:21:51 PM EST
    should be the name in your headline, not Tim Geithner.  Not that Geithner isn't terrible, just that no matter who Obama chose they would be terrible on economic issues because Obama is terrible on economic issues.  He's always been a Reaganite.   And so he surrounds himself with people like Geithner and Bernanke and Summers.  Even Bill "NAFTA" Clinton had Steiglitz.  Obama appointed nobody like that and there's a reason - he has no interest in what they have to say.  

    And he telegraphed early on he didn't give two craps about home owners.  Even before he was elected he was looking to delay any discussion of HOLC (which he couldn't even be bothered to name).

    Sometimes the problem really is the Czar.  This is one of those times.

    Birds of a feather, I think... (5.00 / 2) (#35)
    by Anne on Fri Feb 04, 2011 at 03:38:46 PM EST
    Geithner is awful, but he's there because he brings to the table what Obama wants to see there.

    And I guess when one hangs out long enough with people who also have a general disdain for the average person, that's the kind of attitude/groupthink that colors and shapes actual policy - they've legitimized it for Obama; it's working out quite well for the bankers and brokers, but it's killing the rest of us, and Obama just doesn't care.


    Yes, birds of a feather (5.00 / 2) (#37)
    by BDB on Fri Feb 04, 2011 at 04:25:27 PM EST
    I've read that the Big O and Geithner really bonded.  And that's not even taking into account the conspiracy theories about their parents.

    But that's kind of my point.  It's ridiculous to blame Geithner for giving Obama the advice he wants and would get from whomever was Treasury Secretary because, to use BTD's phrasing, corrupt, incompetent (incompetent for whom?) Treasury Secretaries are all Obama wants and the only ones he would ever appoint.  


    At the risk of sounding like a broken record I'll (5.00 / 6) (#41)
    by Edger on Sat Feb 05, 2011 at 01:37:52 AM EST

    Rather than bailing out wall street hover the subprime mortgage mess they created for themselves and everyone else, the administration and the fed could instead have paid off every mortgage in the country, subprime or not, for less money (only about 12 trillion) than the 18-20 trillion they gave wall street as a reward for pillaging the economy. This could even have been done with tax credits thus avoiding any outlay of money from the fed.

    It would have restored the value behind the CDO mortgage backed securities that wall street got themselves into so much trouble with, and thus saved wall street while tremendously boosting the consumer driven economy as the money would have gone directly to the mortgage holding banks while at the same time effectively doubling the amount of bailout money by lifting a enormous debt weight from all those homeowners who would then have had an equivalent amount of disposable funds to spend any way they chose.

    The US consumer economy would be rockin' by now - maybe even enough to pull the rest of the world out of the hole.

    Now, had this been done Obama and the Democrats would likely have lost all future donations from wall street and they'd be whining so loud we  couldn't hear ourselves think - those donations of course were more important to Obama than bailing out homeowners instead of the party's corporate owners.

    Candidate Barack Obama campaigned for the restoration of Glass-Steagall, and then put in place all the same people who'd destroyed it. He'd been made an insider. The day after a special election in Massachusetts to replace Senator Ted Kennedy, President Obama briefly pulled out his old rhetoric. Wall Street immediately shifted its "donations" from Democrats to Republicans, and that settled that. Obama pushed corporatized "health insurance reform," which distracted from his absolute subservience to Wall Street on matters financial. He drew on the "expertise" of those who'd created and collapsed these mega-corporations in building on President George W. Bush's accountability-free bailouts at public expense. It was the same pattern Obama followed in every department: Where he didn't leave Bush's people in charge he brought back Clinton's. Anything to be an insider.

    -- A Reminder: "Wall Street's Mercenaries Ride Donkeys"

    Well you know (5.00 / 2) (#43)
    by Rojas on Sat Feb 05, 2011 at 09:41:10 AM EST
    There is very little money to be made if mortgages are paid off early.

    We cannot cram down because everything (none / 0) (#4)
    by Militarytracy on Fri Feb 04, 2011 at 10:19:25 AM EST
    is securitized.  If any investors take a haircut the world will blow up.

    Odd that... (5.00 / 1) (#6)
    by kdog on Fri Feb 04, 2011 at 10:26:17 AM EST
    at OTB the investors get a haircut most everyday, and the horses always run tomorrow.

    And they eat yummy oats (none / 0) (#9)
    by Militarytracy on Fri Feb 04, 2011 at 10:34:36 AM EST
    and are covered in warm blankets and get nice baths :)  They even get Vet care that for two legged mammals is called healthcare :)

    Maybe we should model our economy... (none / 0) (#12)
    by kdog on Fri Feb 04, 2011 at 10:53:03 AM EST
    on the thoroughbred horse racing industry...as shady as racing can be, it's on the uber up&up compared to high finance.

    Try the (none / 0) (#15)
    by dead dancer on Fri Feb 04, 2011 at 11:29:46 AM EST
    NFL instead.

    I was just reading a document titled (5.00 / 1) (#8)
    by Militarytracy on Fri Feb 04, 2011 at 10:32:29 AM EST
    'An Analysis of Government Guarantees and the Functioning of Asset-Backed Securities Markets' that the Federal Reserve Board has up.  It is a huge POS arguing for the government to guarantee every auto loan and credit card loan too so that Wall Street can securitize those and make zero losing bets on them too...even if they somehow leverage that "guarantted profit" to the 100th power.

    The authors actually had the nerve to try to get readers to understand who bears the credit risks of asset securitization during normal economic times....and I had to spit coffee out.  All economic times are normal economic times, an economy is an organic sort of thing and you may enjoy what is happening with it more at certain times and you may hate what is happening with it at certain times but all economic times are normal economic times.  Jesus the people running this financial show have lost their minds!


    What did Geithner do @ NY Fed.? (none / 0) (#36)
    by oculus on Fri Feb 04, 2011 at 04:05:38 PM EST
    Need to catch up.

    The NY Fed & Geithner (5.00 / 3) (#38)
    by BDB on Fri Feb 04, 2011 at 04:29:18 PM EST
    Here's a place to start getting some background on Geithner's turn at the Fed and why it's troubling.  Note the dateline - January of last year.  Yet, despite (because of?) this background, Obama continued to follow Geithner's lead on FinReg.  And why wouldn't he?  Geithner is owned by the same people who own Obama.

    Thank you. (none / 0) (#39)
    by oculus on Fri Feb 04, 2011 at 04:52:55 PM EST