Keeping People in Their Homes

The Washington Post reports to today that the FDIC and Treasury Department are close to a deal that would keep people in their homes. Since NDN began its Keep People in Their Homes campaign a month and a half ago, momentum has steadily built to restore stability to the housing market.

From the Post:

Negotiators for the Treasury and Federal Deposit Insurance Corp. are nearing agreement on a plan to have the government guarantee the mortgages of millions of distressed homeowners in what would be a significant departure for the federal rescue program, which has so far directed relief exclusively to banks and other financial institutions.

The plan, which sources said could cover as many as 3 million homeowners in danger of foreclosure and cost $40 billion to $50 billion, would go well beyond previous government and private-sector initiatives. Critics say these have attracted too few lenders or offered too little aid to homeowners to stem the foreclosure crisis.

But with economic anxieties continuing to mount and political pressure growing for expanded help to homeowners, federal officials could announce a new program to cover as much as $600 billion in mortgage loans in the coming days, sources said. They spoke on condition of anonymity because the negotiations were ongoing.
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"The key to our economic recovery is in addressing the root cause of this crisis -- the housing crisis," said Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee. "Federal agencies and financial institutions must do more to modify the mortgages they hold in order to stop foreclosures and help families keep their homes."

Also, on Tuesday in the Wall Street Journal, Andrew Caplin, Thomas Cooley, Noel Cunnihgham, and Mitchell Engler wrote an op-ed called "We Can Keep People in Their Homes." NDN's argument, that arresting the financial cave-in involves, at its core, keeping people in their homes, looks to have reached the tipping point. We urge those involved in negotiations to make this a reality. 

Steven Pearlstein has a wonderful close to his column today:

In putting several trillion dollars in government funds on the line, the country has now done just about everything that Wall Street could have asked to address the financial crisis. The question now, as John Kennedy might have put it, is what Wall Street is ready to do for its country. So far, the answer is not much.

After getting their closed-door briefing yesterday from Paulson on the government's latest initiatives, Wall Street's finest literally ran from the Treasury to their waiting limousines, bypassing a media scrum eager to convey any scrap of wisdom or insight.

Court reporters will tell you they can always tell the innocent from the guilty on these kinds of perp walks, and the Wall Street crowd yesterday looked particularly guilty, unable even to conjure up a soothing word to a nation fretting over its shrunken 401(k)s, or a simple thank you to taxpayers for having saved their bacon. Their silence and invisibility throughout this crisis attests to the moral and political bankruptcy of a financial elite that is the perfect match for the financial bankruptcy they have now visited upon their investors, their creditors and their customers.

After yesterday's "historic" meeting, we are told by industry apologists that we are supposed to be grateful to nine leading banks for having "volunteered" to accept additional capital from the Treasury, along with a government guarantee for newly issued bank debt, even if it means having to accept a dilution of existing shares and a few harmless restrictions on their operations.

Pardon me if I'm less than blown over by this munificent offer, but it hardly seems commensurate either with the severity of the current crisis or the depth of the banks' culpability in fomenting it.

If Wall Street were truly serious about convincing Main Street that we're all in this together, its top executives would have stepped before the cameras yesterday and promised not to cut lines of credits to long-standing business customers who have never missed a payment.

They would have committed themselves not to foreclose on any homeowner who is willing and able to refinance into a new, government-guaranteed, fixed-rate mortgage set at 85 percent of the current value of the property.

They would have offered to suspend dividend payments until capital levels had been restored to pre-crisis levels.

They would have given us their solemn promise not to advise clients to hold on to their own investments while quietly dumping whatever they can from their own portfolios and shorting every security in sight.

With the Treasury now desperate for help in managing its new rescue efforts, they would have volunteered, at no cost to taxpayers, the services of some of those investment bankers and financial wizards who now don't have much else to do.

And the maharajas of finance could have set a wonderful example if they had all gotten together and agreed to work for a dollar a year until the crisis has passed.

There's a word that captures the instinct to take these kind of bold moves in the midst of a national crisis -- it's called leadership. We've seen quite a bit of it these past few weeks from public officials like Hank Paulson, Ben Bernanke, Tim Geithner, Sheila Bair, Nancy Pelosi, Barney Frank, John Boehner -- even George Bush. Wall Street, by contrast, has served up a nothing sandwich, a lack of leadership that's been stunning.

On the day it was announced that he had won the Nobel Prize for Economics, Paul Krugman joins NDN in singing the praise of Gordon Brown and in asking the question the public, the media and Congress must be asking - why did this White House get it so wrong?

At a special European summit meeting on Sunday, the major economies of continental Europe in effect declared themselves ready to follow Britain's lead, injecting hundreds of billions of dollars into banks while guaranteeing their debts. And whaddya know, Mr. Paulson - after arguably wasting several precious weeks - has also reversed course, and now plans to buy equity stakes rather than bad mortgage securities (although he still seems to be moving with painful slowness).

As I said, we still don't know whether these moves will work. But policy is, finally, being driven by a clear view of what needs to be done. Which raises the question, why did that clear view have to come from London rather than Washington?

It's hard to avoid the sense that Mr. Paulson's initial response was distorted by ideology. Remember, he works for an administration whose philosophy of government can be summed up as "private good, public bad," which must have made it hard to face up to the need for partial government ownership of the financial sector.

I also wonder how much the Femafication of government under President Bush contributed to Mr. Paulson's fumble. All across the executive branch, knowledgeable professionals have been driven out; there may not have been anyone left at Treasury with the stature and background to tell Mr. Paulson that he wasn't making sense.

Luckily for the world economy, however, Gordon Brown and his officials are making sense. And they may have shown us the way through this crisis.

From the WSJ tomorrow (via MSNBC) an article that offers more evidence that much more pain is to come, and that we must find a way to keep people in their homes:

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults - the very misfortune that touched off the credit crisis last year.

The result of homeowners being "underwater" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners underwater is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30 percent in some areas, roughly 12 million households, or 16 percent, owe more than their homes are worth, according to Moody's Economy.com.

The comparable figures were roughly 4 percent underwater in 2006 and 6 percent last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners underwater in this period than any time in our history."

As some of you may be aware our office is right across from the Treasury Building.  I can see Paulson from my front porch, so to speak.  

A few minutes ago a very loud protest began outside Treasury.  It is angry, loud, unnerving. 

For those in Congress looking to but a deal back together I hope they consider what has happened to the American middle class this decade.  The typical family is making less money today than when Bush took office.  Those in bankruptcy, with homes foreclosed upon, in poverty and without health insurance have risen.  Every day anger at the economy drove the GOP from office in 2006 and is driving the national debate today.  Given all this it was almost unbelievable that Congress would pass the 1st Bush Bailout Bill which had so little obvious benefit for those struggling harder and harder to make ends meet.  It is why the calls coming into Congressional offices are running big time - 30 to 1 in some offices - against the deal.  

The economic performance of the Bush era has been an epic failure.  A lower standard of living for the typical family.  Rising poverty and those without health insurance.  Out of control spending balanced with dramatic tax cuts for the wealthy creates a structural budget deficit and a huge increase in the national debt.  American support for global economic liberalization dramatically recedes, and the new global trading round - Doha - fails.  Needed investments in our kids, our skills, our infrastructure, the all important transition to a low carbon economy all put off.   Umployment rising.  Collapsing housing and financial markets. Bush's economic stewardship has been disasterous for America - why should we expect him to all of a sudden to get a major financial crisis right? 

Our advice to Congress - put real provisions to keep every day in their homes as part of the final deal or don't be suprized if the American people and very real voters spit the bit.  The American people are tired of a government more concerned with things other than their increasingly difficult struggle to get ahead.  This debate is a time - even this close to the election - where Congress and the President can acknowledge that the struggle of every day matters to them as much as the struggle of big banks.  This isn't that hard my friends.  Keeping people in their homes is both the right economic thing to do and the right moral and political one as well.  

If you are looking for a plan on how to do it give Hillary Clinton a call.  She has a good one.

We will have more to say on the bailout bill a little later today, but for now I found these essays by Larry Summers, Paul Krugman, Robert Samuelson and Steven Pearlstein helpful.

For both economic and political reasons, we start the morning disappointed more wasn't done to keep people in their homes.  

In a powerful lead editorial today, What About The Rest of Us?, the NYTimes echoes NDN's calls to make keeping people in their homes the core of the final financial rescue package:

Lawmakers were still wrangling Thursday night about the Bush administration's $700 billion bailout of the financial system. Political theater was mainly responsible for the delay, but it will be worth the wait if lawmakers take the time to make sure that the plan includes real relief for homeowners and not only for Wall Street.

The problems in the financial system have their roots in the housing bust, as do the problems of America's homeowners. Millions face foreclosure, and millions more are watching their equity being wiped out as foreclosures provoke price declines.

The problems became even more evident Thursday night with the federal seizure and sale of Washington Mutual to JPMorgan Chase.

It's unacceptable that lawmakers have yet to come out squarely in favor of bold homeowner relief in the bailout bill. Treasury Secretary Henry Paulson, the biggest advocate of bailing out Wall Street, is also a big roadblock to helping hard-pressed borrowers. He wants to keep relying on the mortgage industry to voluntarily rework troubled loans, even though that approach has failed to stem the foreclosure tide - and does a disservice to the taxpayers whose money he would put at risk in the bailout.

The New York Times offered these thoughts this morning:

Absence of Leadership

It took President Bush until Wednesday night to address the American people about the nation's financial crisis, and pretty much all he had to offer was fear itself.

There was no acknowledgement of the shocking failure of government regulation, or that the country cannot afford more tax cuts for the very wealthy and budget-busting wars, or that spending at least $700 billion of taxpayers' money to bail out Wall Street and the banks should be done carefully, transparently and with oversight by Congress and the courts.

We understand why he may have been reluctant to address the nation, since his contempt for regulation is a significant cause of the current mess. But he could have offered a great deal more than an eerily dispassionate primer on the credit markets in which he took no responsibility at all for the financial debacle.

He promised to protect taxpayers with his proposed bailout, but he did not explain how he would do that other than a superficial assurance that in sweeping up troubled assets, government would buy low and sell high. And he warned that "our entire economy is in danger" unless Congress passes his bailout plan immediately.

In the end, Mr. Bush's appearance was just another reminder of something that has been worrying us throughout this crisis: the absence of any real national leadership, including on the campaign trail.

Given Mr. Bush's shockingly weak performance, the only ones who could provide that are the two men battling to succeed him. So far, neither John McCain nor Barack Obama is offering that leadership.

What makes it especially frustrating is that this crisis should provide each man a chance to explain his economic policies and offer a concrete solution to the current crisis.

Mr. McCain is doing distinctly worse than Mr. Obama. First, he claimed that the economy was strong, ignoring the deep distress of the hundreds of thousands of Americans who have already lost their homes. Then he called for a 9/11-style commission to study the causes of the crisis, as if there were a mystery to be solved. Over the last few days he has become a born-again populist, a stance entirely at odds with the career, as he often says, started as "a foot soldier in the Reagan revolution."

After daily pivoting, Mr. McCain now says that the bailout being debated in Congress has to protect taxpayers, that all the money has to be spent in public and that a bipartisan board should "provide oversight." But he offered not the slightest clue about how he would ensure that taxpayers would ever "recover" the bailout money.

Mr. McCain proposed capping executives' pay at firms that get bailout money, a nicely punitive idea but one that does nothing to mitigate the crisis. And that is about as far as his new populism went.

What is most important is that Mr. McCain hasn't said a word about strengthening regulation or budged one inch from his insistence on maintaining Mr. Bush's tax cuts for the wealthy. That trickle-down notion has done nothing to improve the lives of most Americans and, even without a $700 billion bailout, saddled generations to come with crippling deficits.

Mr. Obama has been clearer on the magnitude and causes of the financial crisis. He has long called for robust regulation of the financial industry, and he said early on that a bailout must protect taxpayers. Mr. Obama also recognizes that the wealthy must pay more taxes or this country will never dig out of its deep financial hole. But as he does too often, Mr. Obama walked up to the edge of offering full prescriptions and stopped there.

We don't know if Mr. McCain or Mr. Obama will do any good back in Washington. But Mr. McCain's idea of postponing the Friday night debate was another wild gesture from a candidate entirely too prone to them. The nation needs to hear Mr. Obama and Mr. McCain debate this crisis and demonstrate who is ready to lead.

For well over a week, NDN has been offering its thoughts on the causes, effects, and proposals in the financial meltdown. Yesterday, Simon Rosenberg and Dr. Robert Shapiro released an essay encouraging the federal government to keep people in their homes and stabilize the housing sector. U.S. Sen. Barack Obama has been doing the same, meeting with top economists, outlining his principles, and working to ensure that this financial bailout actually helps everyday Americans.

Meanwhile, U.S. Sen. John McCain, has, in the words of George Will, "substituted vehemence for coherence," for the last week, calling for the head of SEC Chairman Chris Cox, demanding regulation he used to crusade against, and otherwise misunderstanding the complex levers that drive America’s financial sector.

Today, following an 8:30 am call from Obama and some very, very bad public polling, McCain snapped, and decided that the financial crisis was in fact worthy of a significant reaction. McCain’s chosen reaction, leaving the campaign trail to return to the scene of the deregulation and try his hand at crafting legislation that accomplishes the opposite of what he has stood for his entire political career, is the easy way out. It is designed to do one thing: place Obama in an awkward position. One must not confuse this – campaign tactics – for what McCain wants people to think it is – leadership.

So, instead of campaign trail theatrics and huff-and-puff returns to Washington, let’s have a debate on Friday. But, instead of talking about foreign policy, let’s talk about the financial meltdown and the future of the American economy. An unprecedented number of Americans think the country is headed in the wrong direction, and they are looking for those who would lead to demonstrate that they have a plan to put the nation back on track. These two Senators are running for President amidst the greatest economic turmoil in a very long time. The American people deserve a debate.

UPDATE: From Obama, courtesy of Politico.com's Ben Smith:

It’s my belief that this is exactly the time the American people need to hear from the person who in approximately 40 days will be responsible with dealing with this mess.
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Presidents are going to have to deal with more than one thing at a time. It's not necessary for us to think that we can do only one thing, and suspend everything else.

In its lead editorial today, the New York Times asks a simple but super important question - why should we trust this Administration to understand what is happening now to our financial markets, offer the right solution and then manage the coming difficult process ahead? 

With two days of Senate and House testimony ahead, our financial future takes center stage in Congress, as it appropriate given what the American people are being asked to do, and who is doing the asking.

As I wrote over the weekend, I, like many, worry about what this means for the agenda of the next President.  Through the twin disasters of Iraq and the financial bailout, we will have little money now to tackle other urgent national priorities - modernizing our schools, improving the skills of our workers, investing in clean and traditional infrastructure, helping move our nation to a low-carbon future, radically improving our health care system, managing the coming retirement of the Baby Boomers, protecting our homeland, keeping people in their homes? Will cleaning up the terrible messes of this disappointing era overwhelm the need to build our 21st century economy and sap our collective capacity to tackle the necessary and tough challenges ahead?

Congress must stand firm and ask the tough questions.  The most important being will this investment of what will be more than $1 trillion actually stop the meltdown?  Rob and I offered our thoughts on this last Wednesday, and argue that without an effort to keep people in their homes, any moves by the the government are unlikely to do what we need them to do. 

It is more important now for Congress to do the right thing than the expedient thing.