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Next Stop: Help With Housing

I'm taking President's Day off. Posting will resume Tuesday morning.

Remember what started this whole mess in the first place? Even as President Obama' s massive stimulus bill faces its final test in Congress today, the White House is looking ahead to its next big move: addressing the foreclosure problem that is at the heart of the economic downturn.

Obama told an audience of more than 80 American chief executives this morning that passing the stimulus "is a critical step, but as important as it is, it's only the beginning of what I think all of you understand is going to be a long and difficult process of turning our economy around. To truly address this crisis, we will also need to address the crisis in our financial sector to get credit flowing again to families and businesses. And we need to confront the crisis in the housing sector that's been one of the sources of our economic challenges. I'll be discussing that extensively soon."

Renae Merle writes in today's Washington Post: "The Obama administration is considering a proposal to help distressed homeowners by subsidizing lenders who cut the interest rate on mortgages, according to sources familiar with the discussions.

"The sources cautioned that the administration is still weighing several options for addressing the country's growing foreclosure problem. The Treasury Department has set aside $50 billion for a homeowner relief program, which officials said was likely to be announced within the next week....

"The initiative would include both carrots and sticks for lenders, said lawmakers briefed by the administration. For example, it would probably endorse legislation to allow bankruptcy judges to change the terms of mortgage loans, a measure opposed by the industry. But the program would also include legal protections for lenders that modify loans but fear being sued by investors. Government subsidies could be among the inducements for lenders, the lawmakers said."

Today, though, Obama was pitching his stimulus package to the business leaders. It "will ignite spending by businesses and consumers, make the investments necessary for lasting economic growth and prosperity, and save or create more than 3.5 million jobs over the next two years," he said.

Meanwhile, Congress just last night finally Web-published copies of the actual bill. And, man, This thing really is huge. If you want to peruse it, you're much better of using ProPublica's reader-friendly version.

Shailagh Murray and Paul Kane, writing in The Washington Post, spend a little time looking at the things that vanished in conference from one version or another -- you know, $300,000 for a Justice Department program to fight violence against women, $65,000 for a watershed construction project, and, yes, $20 billion in school construction.

But consider what's there:

"Broadband investment totaling $7.2 billion would target poor and rural areas. The Department of Homeland Security would receive $1 billion to upgrade airport baggage and checkpoint screening. In a victory for rail advocates, the bill includes $9.3 billion to develop high-speed trains and to improve Amtrak....

"Public housing provisions total nearly $10 billion. Nearly $15 billion would go to clean-water and environmental protection projects. Minus the construction money, education programs would receive nearly $100 billion in new funding, including $12 billion for special education, boosting the federal share for education services to the highest level ever, according to the Senate Appropriations Committee.

"The bill would make a significant down payment on Obama's health-care and energy agendas. It would provide nearly $20 billion to adopt uniform medical-records technology, portrayed as a job-creating exercise and part of the foundation for broader health-care reform. It also includes more than $40 billion for energy-efficiency programs and new energy technologies, including $11 billion to upgrade the national electricity grid.

"Individuals who have lost their jobs during the ongoing recession would receive health-care and unemployment assistance. The bill would provide a $20 billion increase in the food stamps program and $2.1 billion to expand Head Start.

"On the tax side, the bill calls for a two-year $400 credit to working individuals and $800 to working couples, distributed through a payroll tax deduction or claimed as a lump sum for the 2009 and 2010 tax years. Social Security recipients would receive a one-time $250 payment."

And that's just for starters. It's quite the list.

Michael A. Fletcher writes in The Washington Post: "President Obama on Thursday touted the $789 billion economic stimulus package nearing congressional approval, telling workers at a huge manufacturing plant here that 'a new wave of innovation, activity and construction will be unleashed all across America' once the plan is enacted."

Christi Parsons writes in the Los Angeles Times: "Obama offered his best case for optimism, promising that the largesse of the recovery plan ready for congressional approval will help companies such as Caterpillar weather the recession. Congress is moving toward passage this weekend.

"'When they finally pass our plan, I believe it will be a major step forward,' the president said. 'I'm not the only one who thinks so,' he said, pointing out Caterpillar Inc. Chief Executive Jim Owens in the crowd.

"Obama said Owens told him that once the money starts flowing, 'this company will be able to rehire some of the folks who were just laid off.'

"'That's a story I'm confident will be repeated across the country,' the president said.

"After the event, however, the Associated Press reported that Owens said he didn't expect quick improvement. 'The reality is we'll probably have to have more layoffs before we can start hiring again,' he said."

And what, exactly, was the White House's role in shaping the bill?

Carl Hulse and Jeff Zeleny write in the New York Times: "The negotiations over the largest economic rescue plan since the New Deal offered a window into how the relationship between the White House and Congress will take shape over the next four years, with a West Wing filled with more alumni of the House and Senate than any recent administration....

"By combining this intimate familiarity with Congress and its personalities with a speed-dial approach to negotiations, administration officials and lawmakers say they have achieved a series of rapid victories, putting them on the verge of winning approval of an economic plan that retains Mr. Obama's original core principles. The president has already signed into law an expansion of children's health care and a wage antidiscrimination law and avoided a showdown over bank bailout funds...

"Some lawmakers believe it was a mistake for the administration to cede so much responsibility to House Democrats for putting the initial bill together. It resulted in a measure that came under fire from Republicans and even some Democrats for focusing too heavily on traditional Democratic spending priorities, and it had to be stripped of some initiatives like contraception and restoring the National Mall after critics highlighted the spending....

"But White House officials pointed to several reasons why they did not consider writing their own bill and sending it to Congress for fast-track approval by the Democratic majority.

"Mr. Obama, they said, had not even taken office when the House began working on the legislation. Moreover, they said, if the new administration put a full plan on the table, it would inevitably have been picked apart by both parties. And Mr. Obama directed his staff members to set a respectful tone, keeping in mind that Republicans would be needed on future issues like energy and health care reform.

"But after the House and the Senate each had worked through the bill, the White House stepped in aggressively this week and took control of the measure."

Indeed, Richard Wolf writes for USA Today: "A $790 billion economic stimulus plan that is headed toward final approval in Congress today came together quickly this week because the Obama administration offered a detailed compromise to 'make this the president's plan,' White House chief of staff Rahm Emanuel said.

"To persuade Democrats and Republicans to make concessions, Emanuel said the White House put 'some skin in the game' by offering to trim its major tax cut. Instead of saving individuals $500 and couples $1,000 this year and next, the accord calls for $400 and $800....

"Obama also agreed to accept a $70 billion tax cut aimed at middle-class families who are threatened by the alternative minimum tax, although it lacks much stimulative effect. 'It was the price for getting a deal done,' Emanuel said."

So does this mean Obama gets to celebrate? Republicans obviously don't think so. And neither do some liberals.

Paul Krugman writes in his New York Times opinion column: "Mr. Obama's victory feels more than a bit like defeat. The stimulus bill looks helpful but inadequate, especially when combined with a disappointing plan for rescuing the banks. And the politics of the stimulus fight have made nonsense of Mr. Obama's postpartisan dreams."

On that last point, Krugman writes that "it's now clear that the [Republican] party's commitment to deep voodoo — enforced, in part, by pressure groups that stand ready to run primary challengers against heretics — is as strong as ever. In both the House and the Senate, the vast majority of Republicans rallied behind the idea that the appropriate response to the abject failure of the Bush administration's tax cuts is more Bush-style tax cuts.

"And the rhetorical response of conservatives to the stimulus plan — which will, it's worth bearing in mind, cost substantially less than either the Bush administration's $2 trillion in tax cuts or the $1 trillion and counting spent in Iraq — has bordered on the deranged."

Don't miss my earlier post on the withdrawal of Republican Judd Gregg as commerce secretary nominee -- and what it says about Obama's hopes for bipartisanship.

Krugman concludes: "I don't know about you, but I've got a sick feeling in the pit of my stomach — a feeling that America just isn't rising to the greatest economic challenge in 70 years. The best may not lack all conviction, but they seem alarmingly willing to settle for half-measures. And the worst are, as ever, full of passionate intensity, oblivious to the grotesque failure of their doctrine in practice."

The New York Times editorial board writes that "the $789 billion stimulus and recovery package that Congress approved this week could have accomplished more than it did.

"The bill is, for the most part, a step in the right direction. But political wrangling, including President Obama's futile pursuit of bipartisanship, rendered it smaller and less focused than it needed to be....

"The administration's next shot at advancing its economic aims will be Mr. Obama's first budget. The new president should stop courting Republicans who have shown no interest in compromise or real economic fixes. The budget resolution is immune from filibustering. If every Republican wants to vote against it, Mr. Obama should leave them to explain that decision to voters who are in danger of losing their jobs or their houses or both."

John Judis writes for the New Republic: "There are many good things to say about the stimulus bill. But all in all, it wasn't as good as it could be: It's probably too small and too skewed toward tax cuts, and particularly cuts for upper-income people who won't necessarily spend them. The bank bailout is, well, a mystery, but at best a political fiasco."

His proposed solution is for strident leftist critics to stop holding back -- and start agitating for Obama to go well beyond where he would even ideally like to go.

By Dan Froomkin  |  February 13, 2009; 11:57 AM ET
Categories:  Financial Crisis  
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I think it would be more accurate to say that the mortgage crisis *triggered* the financial crisis, not that it caused it. The mortgage crisis was a pretty big bomb landing in the economy, but if it hadn't landed in the munitions factory that is credit default swaps and other opaque and vastly overvalued financial instruments that are ten to a hundred times a larger portion of the economy, it wouldn't have caused nearly the same level of damage.

Posted by: jimeh | February 13, 2009 2:04 PM | Report abuse

King County (the other Washington) is sending help. We are sending our best County Executive: Ron Sims is currently President Obama's nominee for Deputy Secretary of the US Department of Housing and Urban Development

Posted by: rmorris391 | February 13, 2009 2:39 PM | Report abuse

Of course the housing/mortgage metldown create this. The US housing market is about $20 trillion today. From 2000 to 2006 it increased by about 240% (now at about 160%). The amount of mortgages are about 50% of the base, or about $10 trillion, give or take. If one thinks there was a 10% loss in the mortgage market over a 3 year period, that is $1 trillion of lost capital to the financial industry (some put this number at around $2 trillion due to subprime lending). So how was this not the cause? We are in this mess because people bought houses that could afford them. Period.

Posted by: mmourges | February 13, 2009 3:46 PM | Report abuse

The other Washington also has a capable Governor Emeritus, Gary Locke, with the background to be a fine Secretary of Commerce.

Posted by: cwh2 | February 13, 2009 10:59 PM | Report abuse

If Krugman says that this is not big enough, then it's not big enough. However, it is as big as could get passed at this time. For the next two years we are going to have to try to kill this oncoming depression with a thousand cuts. We are just going to have to keep trying. In 2010, no matter what, we will be able to take a half dozen Senate seats from the Republicans and then we can pass anything necessary. The Republicans might be able to gain some House seats if the economy is bad in November, 2010, but they will lose Senate seats regardless.

Posted by: dickdata | February 13, 2009 11:21 PM | Report abuse

It is truly amazing that the over inflated house prices were allowed to destroy our society. I used to appraise real property for property taxes and unfortunately, the fee appraisers who are supposed to be licensed were unqualified to assess the real value of property. But we bought their speel and so we should pay.

Posted by: sailorflat | February 14, 2009 7:14 PM | Report abuse

"We are in this mess because people bought houses that could [not] afford them. Period."

How far do you have to bury your head in the sand to get this confused about the situation? Really, spend a few minutes reading about the complicity of investment banks, credit rating agencies, and the host of conflicts of interest that led us to this point. Or, you know, just blame the people at the very bottom since they have no one to shift blame onto.

Posted by: BigTunaTim | February 15, 2009 12:49 PM | Report abuse

hey bigtuna, how about being specific. Got names, dates, dollar amounts, etc? Sure banks securitized the mortgages and others created oddball insurance derivitives, etc., but it was all based on the explosion in the mortgage market and mortgages are created by people who buy and refinancing houses. Banks don't make the stuff up, so yes, it was the greed of homebuyer, fanned by the greed of the banks but homebuyers were the ones who got the ball rolling. Period.

Posted by: mmourges | February 16, 2009 12:31 PM | Report abuse

Period?? Oh, so you can solve this debate without provide any statistics or even an article in support of your position. Maybe you are right, but don't demand names, dates and dollar amounts without providing the same things. And please avoid silly statements like "period".
What I don't understand is how republican's trot out statistics like how the stimulus amount could buy 90% of mortgages, while complaining about entitlement spending in the stimulus package and calling home owners irresponsible. Why bother bringing up foolish alternatives? It's not constructive.

Posted by: ashotinthedark | February 16, 2009 12:36 PM | Report abuse


I claim that what drove the bankers mad was the illusory ability to abolish risk from the markets. It was a beautiful scheme. You write whatever kind of garbage paper you want to, attach a credit default swap to it, and you can rationalize selling it as AAA debt. After all, if the borrower doesn't pay, the insurer pays, right?

It was a beautiful scheme, right up to the day the losses brought AIG to its knees.

The housing bubble was only a symptom of this insanity. When there were no limits on the money available for home mortgages, the buyers available to bid up prices started lining up around the block. With prices on such a wild upswing, who could imagine that they'd ever come down?

That's why the housing bubble isn't primary to our economic troubles. The CDS game was far broader than the home mortgage market. There are still whole segments of this scam that have yet to unravel. There's still plenty of downside to contend with yet.

Posted by: lonquest | February 16, 2009 5:15 PM | Report abuse

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