Senator Jeff Merkely (D-Oregon) is out today with a letter that I think encapsulates the correct response to yesterday's revelation about the details of the multi-billion dollar payday that financial companies got courtesy of secret Federal Reserve lending at the height of the crisis. "These extraordinary actions of the Fed may have been necessary, as many have argued, to prevent a larger financial collapse" he writes, "but our economy still went into a freefall, and the resulting pain has been heavily brone by middle class homeowners. We have still not summoned the same measure of urgency and creativity to help those working families who were hurt by the financial crisis caused by the big banks."
That's right on. The scandal here isn't really that the Fed did so much to bail out banks it's that so little was done once the banking system was secured to help others in need. Merkeley offers a series of excellent proposals for targeted relief for homeowners. You can find the full text below the fold.
Recent press reports provide substantial additional information about the massive support the Federal Reserveprovided to our nation’s largest financial institutions in 2008 and 2009. Now, more than three years after the height of the crisis, our financial firms have returned to profitability, but America’s working families still have not.
Quite simply, our efforts to help working class families stay in their homes have not come close to matching the urgency and resources deployed to assist the nation’s largest financial institutions. This is not acceptable, both for the success of America’s families and for the restoration of our economy.
Yesterday, Bloomberg Markets Magazine reported that the Federal Reserve provided major financial institutions with $7.77 trillion dollars in loans or guarantees as of March 2009 as part of the ultimately successful effort to save our financial system and economy from ruin. Because these loans and guarantees were offered at special below-market rates, these institutions garnered an estimated $13 billion in profit. As Bloomberg noted, “The Fed says it typically makes emergency loans more expensive than those available in the marketplace" but "during the crisis, Fed loans were among the cheapest around, with funding available for as low as 0.01 percent in December 2008."
These extraordinary actions of the Fed may have been necessary, as many have argued, to prevent a larger financial collapse. But our economy still went into a freefall, and the resulting pain has been heavily borne by middle class homeowners. We have still not summoned the same measure of urgency and creativity to help those working families who were hurt by the financial crisis caused by the big banks.
Mr. President, we should heed the wise counsel of Franklin Roosevelt, who knew something about confronting massive economic challenges: “The country needs…bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something.” Large banks are again paying out record salaries and bonuses thanks in no small part to extraordinary interventions by Congress, your administration and that of your predecessor, and the Fed. Let us gather the same vigor and determination for working families trying to stay in their homes.
Today, it is widely recognized by experts across the political spectrum that housing is the principal drag on our economy. Sadly, previous efforts to aid homeowners have fallen short, but that should not stop us from acting now. Indeed we should learn the lessons of recent experience and act with the same kind of decisive, overwhelming strength that was used to rescue our financial firms.
Specifically, I would encourage your administration to aggressively pursue the following proposals:
- Lifeline bankruptcy option, which would give bankruptcy judges the ability to modify the terms of mortgages on primary residences.
- Modifications to HAMP to require a single point of contact for homeowners; end the dual-track system where mortgage servicers are pursuing the foreclosure process while homeowners are applying for a modification; and implement a third party review before foreclosure, to ensure all options to keep families in their homes has been exhausted.
- A national short refinance program, enabling families with an income sufficient to pay the mortgage at current market value the opportunity to repurchase their homes at foreclosure.
- Senator Reed’s plan to make foreclosed properties controlled by government entities available for rental use in areas where too many distressed homes are weighing down the local market.
- Senator Menendez’s plan to offer shared appreciation mortgages to underwater homeowners.
- A first-time homebuyer matching tax credit, which would help working families purchase their first homes at today’s low prices and low interest rates, reducing the huge inventory of foreclosed homes.
With five to eight million foreclosures on the horizon, we urgently need to lay out a new and aggressive plan for homeowners, bringing to bear at least the same conviction and effort that both Democrats and Republicans mustered when financial firms were facing disaster in 2008. We must take swift action to put the housing market back on its feet, create more jobs, and get our economy moving again. If our housing market and working families don’t recover, the economy will not recover.