Financial Meltdown

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. 

From recent action on Capitol Hill, it looks as though the federal government may ultimately take action to keep people in their homes. As Sam mentioned in his daily round-up (a relatively new NDN product that has become a must read in the mornings), FDIC Chariman Sheila Bair’s testimony to the Senate Banking Committee yesterday was well-received, and details of the plan are expected in weeks.

From the New York Times:

With foreclosures mounting, Bush administration officials said Thursday that they were preparing to step up efforts to help struggling homeowners.
A senior policy maker told a Senate committee that the administration was working on a plan under which the government would offer to shoulder some of the losses on loans that are modified.

The insurance program could cost tens of billions of dollars, according to a person briefed on discussions about the plan, and would be run by the Treasury Department under the $700 billion financial rescue bill Congress passed earlier this month.

The remarks about the plan, made by Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, came as a new report showed that foreclosure filings jumped 71 percent in the third quarter from a year earlier. At the hearing, Congressional Democrats criticized the administration for not doing enough to help homeowners even as the Treasury and Federal Reserve have moved to inject hundreds of billions of dollars into banks and the financial system.

Ms. Bair, who has been one of the most ardent proponents of loan modifications, acknowledged that more needed to be done. "We are behind the curve," Ms. Bair told the Senate Banking Committee. "We are falling behind. There has been some progress, but it’s not been enough, and we need to act and we need to act quickly and we need to act dramatically."

The Washington Post's front page also has coverage on the proposal. For well over a month, NDN has been arguing that the federal government must take decisive action to keep people in their homes, as stanching forecloures is a key ingedient to stopping the financial cave in. Thankfully, it finally looks as though the federal government will act. For more on the NDN Keep People in Their Homes campaign, click here.

From the pages of today’s New York Times come two articles on the struggles of millions of Americans who are worried about staying in their homes. The first, from the editorial page, argues that there has been "Only Half a Bailout" and echoes a call made by NDN over a month ago to keep people in their homes. The second, by David Leonhardt, ponders some of the pros and cons of doing just that.

From the Editorial Page:

The unfortunate reality is that as long as millions of Americans continue to default on their mortgages and housing prices continue to slide, banks will continue to suffer big losses. Unless something is done quickly to help American homeowners avoid foreclosure and stay in their homes, those losses could swamp the bailout effort by exceeding the sums being spent to rescue the banks.

Despite the danger posed by foreclosures — to the bailout, homeowners, taxpayers and the economy — the Bush administration and Congress are still depending on banks and other participants in the mortgage industry to voluntarily modify troubled loans, say, by giving borrowers more time to pay or by reducing interest rates.

The voluntary approach hasn’t been enough to stanch foreclosures. As things now stand, some 3.2 million homeowners will likely lose their homes to foreclosure this year and next, and millions more will struggle to catch up on delinquencies. Vacancies and defaults will continue to push house prices down; they have already fallen by 20 percent nationwide and are now expected to fall by at least another 10 percent. There is no time to waste to reverse the spiral.
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Both John McCain and Barack Obama have recognized that this crisis won’t be solved until a way is found to keep many more Americans in their homes.

The editorial goes on to explain detailed options of the Obama and McCain plans, as well as other potential options. The most important point is that homes are the assets at the bottom of this financial cave-in. If foreclosures continue, so will the meltdown. For more on NDN’s Keep People in Their Homes campaign, click here.

The front page of today’s Wall Street Journal features an article on Federal Deposit Insurance Corp. Chairman Sheila Bair calling on the federal government to do more to keep people in their homes. She echoes an analysis that NDN offered a month ago: that home foreclosures are at the root of this financial crisis and that the federal government must work to keep people in their homes.

Federal Deposit Insurance Corp. Chairman Sheila Bair on Wednesday criticized the federal government for failing to take more aggressive steps to prevent Americans from losing their homes, highlighting a rift between her and other senior U.S. officials over terms of the $700 billion rescue package.

The government plan will help stabilize financial markets but it doesn't do enough to address home foreclosures, the root of the crisis, she said in an interview with The Wall Street Journal."Why there's been such a political focus on making sure we're not unduly helping borrowers but then we're providing all this massive assistance at the institutional level, I don't understand it," she said. "It's been a frustration for me."
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Ms. Bair has argued the plan should have a bigger focus on homeowners, whose travails are at the heart of the current crisis. Until home prices stop falling, financial markets and the economy are unlikely to stabilize. "This agency, probably as much as anybody, given our genesis in the Depression, has a sense of purpose now perhaps more than any other agency," Ms. Bair said.

Blair’s call is a welcome sign of the growing consensus of the need for a smarter approach from the government on the financial crisis. Keeping people in their homes is not just a moral issue or good politics, it’s crucial to the economy. If the government fails to stabilize the housing market, the financial cave-in will continue. For more on NDN’s campaign to Keep People in Their Homes, click here.

Courtesy of Politico's Ben Smith, we learn that on a conference call about ACORN earlier today, McCain campaign topper Rick Davis gave McCain credit (blame?) for blowing up the first bailout vote in the House.

Davis expressed outrage that, "in the middle of the greatest disaster in our financial system that we’d had in our lifetime, that the Democrats in the United States Senate would actually link payments to ACORN in the bailout package that they promoted -- prior to Sen. McCain coming to town and actually blowing that package up. So we can actually say that in addition to saving taxpayers millions of dollars, and we’re very happy that no more taxpayer dollars were added to the pile of money going to ACORN."

As Smith goes on to point out, it was the McCain campaign that first blamed Obama for the failure of that first vote in the House - despite the fact that McCain suspended his campaign and threatened not to debate if the bailout package wasn't passed with all haste.

So why is Rick Davis trying to reinvent the past? 

As was discussed on MSNBC's Morning Joe today, the only way McCain could have used the financial crisis to his political benefit was to oppose the bailout. McCain's camp has no doubt realized that and probably wants a re-do. (During which they would have likely ditched that gimmicky "suspension.") In the coming days, watch for Davis and Co try to recreate McCain's actions on the bailout in a manner that is more to their liking. If they don't, well...

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.