Mortgage relief = huge FAIL [View All]

http://www.alternet.org/story/146482/weak_medicine%3A_obama%27s_flawed_plan_for_reforming_the_banks?page=entire

Faced with the failure of its program to produce more than token mortgage relief, the administration resorted to public displays of arm-twisting. In July 2009, Treasury Secretary Geithner and Housing and Urban Development Secretary Shaun Donovan summoned executives of the twenty-five largest mortgage-lending and mortgage-servicing companies to a meeting to demand that they do more. But the shell game continued, with temporary “trial modifications” but precious few permanent cuts in monthly payments. In November, Michael Barr, the assistant Treasury secretary for financial insti¬tutions, flatly declared that “the banks are not doing a good enough job.” In a blunt criticism of Wall Street rare for the Obama administration, Barr added, “Some of the firms ought to be embarrassed, and they will be,” vowing to pressure and shame the banks into increasing trial modifications and making them permanent.

According to my sources, Barr got into some trouble with his supervisors for his populist attack on the banks, which had not been cleared with the White House. But the story played well; and two weeks later, in an interview on the CBS program 60 Minutes, President Obama himself went Barr one better, declaring that he didn’t run for president in order to help a lot of “fat-cat bankers.” In one of his earliest explicit attacks on the banks, Obama noted that some big banks had sought to exit TARP early, in order to escape its limits on executive pay, adding: “which I think tells me that the people on Wall Street still don’t get it.”

The following Monday, December 14, the president called top bankers to the White House for a photo opportunity and a meeting in which he personally pressed them to do more to help struggling homeowners. But three of the bank CEOs stood the president up. They had not bothered to fly in the night before for the morning meeting, and bad weather grounded their flights. When they participated by speakerphone, it was Obama who sounded almost apologetic, and those present at the meeting reported that there was none of the tough talk that the president had used on TV.

Given the flawed structure of the whole approach, banks have no real incentive to provide deep and permanent reductions in mortgage costs, and foreclosures are on track to increase faster than loan modifications or refinancings, needlessly prolonging the great stagnation. Despite this ramping up of rhetoric, the Obama administration has remained in a bubble of denial about the failure of its program of mortgage relief. Geithner, testifying before the Congressional Oversight Panel, said, in a moment of uncharacteristic candor, “We do not have a mortgage market today except for that directly supported by the Government.”