The Obama Administration, with programs like HAMP, intentionally put the fate of the housing market in the hands of the banks, through the servicing companies that they own. It was a stupid idea, doomed to fail, and now that it has collapsed into a stew of fraudulent if not criminal actions by banks and the servicing companies they own, the Obama Administration plans to double down on the stupidity by backing the settlement proposal of the state AG of Iowa, Tom Miller.
No administration official has offered any explanation for its bullheaded determination to allow the businesses that caused the housing crash to pretend to solve the crisis, at least not in public. No sane person would argue that banks are disinterested enough to act reasonably. Servicers make money by screwing homeowners. Banks that own the servicers don’t want to be forced to write off their second liens.
The spineless position in the administration, expressed by such officials working on the matter as David Stevens, soon to be head of the Mortgage Bankers Association (why doesn’t he do the right thing and quit? and why wasn’t he fired?), is that banks and servicers made some mistakes, and those should be corrected, by helping those homeowners who were directly affected by the mistakes. Everyone else needs to pay up or move out without a fight, because anything else would create a moral hazard, and it wouldn’t be fair to homeowners who paid their mortgages despite their economic difficulties if any other person were helped. This is a silly attempt to find a middle ground between the perpetrators and the victims, in accordance with the usual practice of the President.
Simultaneously, administration officials argue that the Great Crash was the result of a great delusion shared by every American, that we could run this country on a mountain of debt, while cutting taxes and off-shoring manufacturing and deregulating the financial industry. The only people who benefited from this cascade of lies were the very rich, and those who acted on their own disbelief. People who fed the lies were rewarded richly. It wasn’t just the Wall Street princelings. Consider David Lereah, the chief economist for the National Association of Realtors, who admits that he spun his forecasts to support his employer’s mission of selling houses. Lereah left the NAR and after a short stint with a start-up took some time off, cruising on his 29 foot sport-fishing boat and playing golf at the country club. Now he has a newsletter on real estate:
“He’s starting to make some money off it now, not much,” says Mrs. Lereah. “We have an expensive lifestyle: a big house, a housekeeper once a week, college tuitions, the country club.”
The Final Report of the Financial Crisis Inquiry Commission has been accused of taking the line that the Great Crash was everybody’s fault. Of course, the FCIC reportedly referred cases for prosecution, which suggests that some were more responsible than others.
The Final Report lists eight causes for the Great Crash. Each one is the result of failures of the elite. Whether it is derivatives, risky mortgage lending, regulatory failure or failures in corporate governance and risk management, each is solely the fault of the people who run the country. The Final Report does mention overborrowing by households, but that too is the fault of the governing elites. They loaned the money, without regard to their fiduciary responsibilities to lend cautiously.
According to the likes of Stevens, the solution is to let the banks and servicers decide who is deserving of help, and everyone else should suck it up and pay off the banksters. So, if the fault is that of banksters and the elites, why does the burden fall on average citizens trapped in the crisis the elites created?
The political question is, as it always is, who will pay for the disaster caused by the rich. It is a struggle between the rich and the middle class. Officials in the Obama Administration side with the rich.
Those officials might assert their liberal bona fides, perhaps by citing their civil rights marches, protests against the war in Viet Nam, or working with Ralph Nader or being community organizers, or any other ancient history. Today, when they could make all the difference for their fellow Americans, they line up to line their pockets.