Obama's Failed Foreclosure Gambit

Moneybox
A blog about business and economics.
Aug. 20 2012 8:25 AM

Obama's Failed Foreclosure Gambit

148300643
A member of the Richmond, Calif., chapter of the Alliance of Californians for Community Empowerment walks by an abandoned garage during a bus tour of foreclosed and blighted properties on July 13 in Richmond.

Photo by Justin Sullivan/Getty Images.

Binyamin Appelbaum has a very helpful rundown of the Obama administration's consistently cautious approach toward delivering some kind of bailout to underwater homeowners, a sharp contrast to the forceful approach toward injecting capital into the banking system and restructuring General Motors and Ford.* The basic contrast is that where Obama pushed hard, he's had success. But on housing we got years of basically nothing, with only a modest, recent uptick as programs have belatedly become a tad more aggressive.

The administration has a few responses to offer in its defense, ably summarized, but I actually think this is one of these cases where some of the people involved are misremembering their own thinking at the time. The main argument I recall from the time was simply that the most important thing was overall economic recovery, and that adding politically controversial side initiatives into the mix would slow overall labor market recovery and thus be counterproductive.

Advertisement

Appelbaum gets at this near the end of the article, where he recalls "Mr. Geithner told Mr. Obama that if even if an additional $100 billion were available, he still would not spend it on housing." In other words, the economic team wasn't saying there was nothing they could do on housing. Nor were they saying that doing more on housing was a bad idea. They were saying that given finite financial resources, they thought investing money in homeowner relief was a poor use of money compared to other initiatives they deemed more stimulative. The basic idea was that you needed the best possible stimulus and thus the lowest possible unemployment rate and this would be the best possible housing policy. It made sense to me at the time, and I think it still makes perfect sense in retrospect. The problem, obviously, is that their recovery measures weren't actually strong enough to create a robust labor market recovery. But while I think it's true that if we had fewer underwater homeowners we'd have a lower unemployment rate, it's also pretty clear that if the unemployment rate were 1.5 percentage points lower we'd have fewer underwater homeowners.

But none of that explains why they were so slow to spend the money that they had that was earmarked for housing. Nor does it explain why they were so slow to fill the post of Federal Housing Finance Agency director. After being discussed with one framing through the winter of 2008-2009, the whole issue seems to have then slipped through the cracks for almost two years while millions of people suffered. The gamble was that this wouldn't matter because other elements of policy would push the labor market into recovery anyway. But it didn't work.

Correction, Aug. 20, 2012: This post originally misspelled the last name of Binyamin Appelbaum.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Culturebox

The End of Pregnancy

And the inevitable rise of the artificial womb.

Doctor Tests Positive for Ebola in New York City

How a Company You’ve Never Heard of Took Control of the Entire Porn Industry

The Hot New Strategy for Desperate Democrats

Blame China for everything.

The Questions That Michael Brown’s Autopsies Can’t Answer

Foreigners

Kiev Used to Be an Easygoing Place

Now it’s descending into madness.

Technology

Don’t Just Sit There

How to be more productive during your commute.

There Has Never Been a Comic Book Character Like John Constantine

Which Came First, the Word Chicken or the Word Egg?

  News & Politics
The Slate Quiz
Oct. 24 2014 12:10 AM Play the Slate News Quiz With Jeopardy! superchampion Ken Jennings.
  Business
Moneybox
Oct. 23 2014 5:53 PM Amazon Investors Suddenly Bearish on Losing Money
  Life
Outward
Oct. 23 2014 5:08 PM Why Is an Obscure 1968 Documentary in the Opening Credits of Transparent?
  Double X
The XX Factor
Oct. 23 2014 11:33 AM Watch Little Princesses Curse for the Feminist Cause
  Slate Plus
Working
Oct. 23 2014 11:28 AM Slate’s Working Podcast: Episode 2 Transcript Read what David Plotz asked Dr. Meri Kolbrener about her workday.
  Arts
Brow Beat
Oct. 23 2014 6:55 PM A Goodfellas Actor Sued The Simpsons for Stealing His Likeness. Does He Have a Case?
  Technology
Technology
Oct. 23 2014 11:47 PM Don’t Just Sit There How to be more productive during your commute.
  Health & Science
Bad Astronomy
Oct. 24 2014 7:00 AM Gallery: The Partial Solar Eclipse of October 2014
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.