Years late and terabucks short blogging…
Four years ago, Obama pivoted to the Axelrod-Geithner line that the decline had stopped, economic recovery was on the way and could handle itself, and that economic policy job #1 was stabilizing the long-term finances of the federal government.
Now, after four largely wasted years spent mostly talking about the deficit, he may be pivoting back:
"I want to make sure that all of us in Washington are investing as much time, as much energy, as much debate on how we grow the economy and grow the middle class as we’ve spent over the last two to three years arguing about how we reduce the deficits", Mr. Obama said. He called for a shift "away from what I think has been a damaging framework in Washington."
This is most welcome. Let us hope that it is indeed permanent.
Now the first step is to strike a deal to get the Republicans in the Senate to confirm Mel Watt as head of FHFA, and then for FHFA and the GSEs to offer a conforming loan-rate refi (with equity kickers attached for those underwater) to every mortgage holder in America. That policy to clean out the credit-channel mess created by the housing finance disaster and housing bubble crash of 2004-2008 would have been good policy in 2009. It would have been good policy in 2010. It would have been good policy in 2011. It would have been good policy in 2012. And it would be good policy today.
For the easiest and best way to fill up the flat tire that is the American economy today is through the housing sector.
You can fit four of the red triangles that are the oversupply of housing built during the boom and bubble into the blue quadrilateral that is the undersupply of housing not build during the bust. We built 1.2 million housing units above trend over 2003-2006. Since 2007 we have not built 5 million housing units that trend required and so we are now 3.8 million housing units short in America.
Getting all the people who did not move out of their sisters' basements into houses and apartments of their own over the past five years is economic recovery job #1, and making housing affordable again is the best way to do that.
The Obama Administration and its Treasury's failure to move on the FHFA and on housing finance over 2009-2012 is up there as one of the leading contenders for the largest Obama Administration unforced errors. As Joe Gagnon said:
Joe Gagnon On The Failure of Refinancing Policy | ThinkProgress: [O]ne of the biggest goals of QEI was to push down the mortgage rate to spark a refinancing boom to encourage households and enable households to reduce their expenditures and repair their balance sheets and be able to spend again. That worked not quite as well as we hoped because the administration’s program for getting underwater borrowers to borrow didn’t work and I think that’s a true disaster that has no excuse. I have nothing but incredible, there’s just, the blame the administration on not doing this is just incredible. This could have been a huge success. We got the lowest 30-year mortgage rates in history and we couldn’t take advantage of them to the extent that we could. We got about a trillion dollars in refinancing when we should have gotten two or three trillion dollars in refinancing…
Someday I want Tim Geithner to explain to me why it was that in 2009 he was so certain that there were going to be "green shoots" and "recovery summers" that he did not select, nominate, and get confirmed an FHFA chair willing to use the GSEs as tools of macroeconomic stabilization by triggering a housing-sector recovery. I do know that as early as the summer of 2008 Democratic economists and policymakers--and Republican ones--were having conversations about what the housing bust would do to the housing-sector credit channel and whether such use of the GSEs would be called for.