Saturday, November 17, 2012
Obama Rejected Bush Mortgages Concession
Barney Frank: Obama Rejected Bush Administration Concession to Write Down Mortgages
Matt Stoller is a fellow at the Roosevelt Institute. You can follow him on twitter at http://www.twitter.com/matthewstoller
WEDNESDAY, MAY 30, 2012
Here’s Barney Frank, in an exit interview recently in New York Magazine, revealing unwittingly that Obama during the transition rejected a Bush administration concession to write down mortgages. Here’s what Barney said.
The mortgage crisis was worsened this past time because critical decisions were made during the transition between Bush and Obama. We voted the TARP out. The TARP was basically being administered by Hank Paulson as the last man home in a lame duck, and I was disappointed. I tried to get them to use the TARP to put some leverage on the banks to do more about mortgages, and Paulson at first resisted that, he just wanted to get the money out. And after he got the first chunk of money out, he would have had to ask for a second chunk, he said, all right, I’ll tell you what, I’ll ask for that second chunk and I’ll use some of that as leverage on mortgages, but I’m not going to do that unless Obama asks for it. This is now December, so we tried to get the Obama people to ask him and they wouldn’t do it.
This is consistent with other accounts. There were policy debates within Obama’s economic team about what to do about the mortgage crisis. The choices were to create some sort of legal entity to write down mortgage debt or to allow the write-down of mortgage debt through a massive wave of foreclosures over the next four to six years. He choice the latter. That choice was part of what led to roughly $7 trillion of middle class wealth gone, with financial assets for the elites re-inflated.
Since I pointed out that the growth of income inequality under Obama is worse than that under Bush, many people have responded by saying that somehow this is not Obama’s responsibility, that it was an inherited crisis and structural problems that caused a widening of inequality. They simply do not want to accept that policy matters, or, if it does, that Obama had any choice in the policy choices he made.
In fact, crisis response is the single most significant policymaking time imaginable, because all structural barriers are swept away. Think about it – this was literally a deal offered by Hank Paulson – one guy – to Barack Obama, with a multi-trillion dollar impact. No 60 votes in the Senate. No hearings. No confirmations. Just a handshake, basically. In other words, policy does matter, and Obama had a variety of choices and leverage, and he did what he thought was best. He did not want to write down mortgages, even though he was offered that choice by the Bush administration and Barney Frank. So he didn’t.
So yes, Barack Obama is worse than George Bush on economic inequality. While Paulson didn’t want to write down mortgages, the single biggest factor in determining whether the American middle class has any stored wealth, Paulson was willing to do so in response to pressure. Barack Obama was not.