Fighting Over the American Home: Handcuffs versus Hope and Change

Matt Stoller is a fellow at the Roosevelt Institute. You can follow him on twitter at http://www.twitter.com/matthewstoller

Over the past four years, we’ve watched as public officials pushed financial and legal power to the large banks – the latest episode in this saga was the mortgage settlement between state officials, Federal regulators, and the banks themselves. But there is also an undercurrent of resistance to this, resistance which could be growing stronger over time.

So what comes after the mortgage settlement? Will there be yet another multi-billion dollar transfer of wealth from taxpayers to banks in the near future? If I’m reading the tea leaves correctly, I suspect the answer is, yes. This time, it will flow through Fannie and Freddie, government entities that are responsible for trillions of dollars of mortgages. There’s been a deeply bitter fight over this giant pot of money, centering around Federal Housing Finance Agency (FHFA) acting head Ed DeMarco. DeMarco controls Fannie and Freddie, and so far, he has refused to write down principal for homeowners on GSE controlled mortgages. But Treasury has been attempting to get DeMarco to change his mind, using the prospect of simply paying off Fannie and Freddie with bailout funds.

Housing finance isn’t just a question of money, it involves the deep fabric of America – the home, savings, the rule law and the meaning of property, and the very space of the nation. It’s also a question of politics, and realigning interest groups that had been allies or opponents. With that in mind, it’s worth looking at how the last few years of bailouts and foreclosures have clarified factions in our politics.

There are two schools of thought on fixing the housing market. The first is the Tim Geithner school, which we’ll call the “hope and change” school. Hope and changers, who occupy most elite positions in the administration, in banks, at the Fed, in the economics establishment in Congress, at housing nonprofits like the Center for Responsible Lending, in regulatory agencies, believe that the housing market will come back when the economy returns. Foreclosure problems may be tragic, or overblown, or not, but ultimately are incidental to fundamentals, like matching housing supply to demand or increasing employment through boosts in aggregate demand. Warren Buffett is probably the most famous member of this school.

The second is the “law and order” or “handcuffs” school, which has (loosely) as members people like former FDIC chief Sheila Bair, former SIGTARP Neil Barofsky, iconoclastic investors such as Bill Frey, foreclosure fraud defense attorneys, Congressional actors like Maxine Waters, criminologists like Bill Black and various securitization experts and bloggers. The handcuffs believes that law and order is not incidental to the breakdown of the housing market, but is central to it.

Rest here…

~

4closureFraud.org