Tag: Timothy Geithner

Was Not Helping Underwater Homeowners a Massive Mistake?

 

091813housing-600x353In their much-praised new book, House of Debt, economists Atif Mian and Amir Sufi argue the 2000s housing crash caused a much worse recession than the tech-stock crash because asset losses were more heavily concentrated among the 99% — who then stopped spending. The burst Internet stock bubble, on the other hand, “concentrated losses on the rich, but the rich had almost no debt and didn’t need to cut back their spending.”

Which raises the following counterfactual: what if Washington had pushed massive relief for underwater homeowners?

Former Obama Treasury Secretary Timothy Geithner doesn’t think something like a principal reduction scheme would have helped much. As he wrote in his new book, Stress Test: “We did not believe, though we looked at this question over and over, that a much larger program focused directly on housing could have a material impact on the broader economy.”

Congress Can’t Wash Away the Executive Branch’s Sins

 

The stakes could not be any larger in the multi-billion dollar financial dispute pitting a large group of institutional investors in Fannie Mae and Freddie Mac against the United States government. Thus far, the debate has largely taken place in the courts, and I have commented extensively on the fundamental weakness of the government’s effort to sign away the rights of these investors through a deal entered into by the Federal Housing Finance Authority and the Treasury Department. 

That debate has how spilled over in to the political arena. Right now, the main mission of the Senate Banking Committee’s Johnson-Crapo housing finance bill is to develop a new framework for future residential home mortgages. Unfortunately, the bill also tries to ditch the many lawsuits brought by private shareholders of Fannie and Freddie Mac against the government for existing claims. While the authors of the bill continue to claim that the proposed legislation leaves the issues relating to investors’ rights to the courts, Section 604 of the bill declares that the August 17, 2012, Third Amendment to the original Senior Preferred Stock Purchase Agreement (SPSPA) “shall not be amended, restated, or otherwise changed to reduce the rate or amount of dividends” and thus perpetuates the government’s right to take all the profits from the two companies.