Barney Franks new autobiography has many revelations in it; a critical revelation is one that implicates the most powerful Democrat in the nation ignoring the plight of homeowner foreclosures during the 2007 housing crash that has been all but entirely expunged from the official records. The media has, of course, focused on the more salacious issues of Frank’s sexual proclivities, while nobody has focused on Frank’s allegation that Barack Obama refused to extract foreclosure relief from the nation’s largest banks, as a condition for their receipt of hundreds of billions of dollars in bailout money; much less throw the bums who were front and center to blame for the debacle into jail.
The shocking twist comes on page 295 of “Frank,” a title that the former chair of the House Financial Services Committee holds true to throughout the book. The TARP legislation included specific instructions to use a section of the funds to prevent foreclosures. Without that language, TARP would not have passed; Democratic lawmakers who helped defeat TARP on its first vote cited the foreclosure mitigation piece as key to their eventual reconsideration.
The Bush administration, still in charge during TARP’s passage in October 2008, used none of the first tranche on mortgage relief, nor did Treasury Secretary Henry Paulson use any leverage over firms receiving the money to persuade them to lower mortgage balances and prevent foreclosures and Frank made his anger clear over this ignoring of Congress’ intentions at a hearing with Paulson that November. Paulson argued in his defense, “the imminent threat of financial collapse required him to focus single-mindedly on the immediate survival of financial institutions, no matter how worthy other goals were.”
Whether or not you believe that sky-is-falling narrative, Frank kept pushing for action on foreclosures, which by the end of 2008 threatened one in 10 homes in America. With the first tranche of TARP funds running out by the end of the year, Frank writes, “Paulson agreed to include homeowner relief in his upcoming request for a second tranche of TARP funding. But there was one condition: He would only do it if the President-elect asked him to.”
Frank goes on to explain that Obama rejected the request, saying “we have only one president at a time.” Frank writes, “my frustrated response was that he had overstated the number of presidents currently on duty,” which consequently angered both the outgoing and incoming officeholders.
But it soon came clear that Obama’s unwillingness to take responsibility before holding full authority doesn’t match other decisions made at that time and was rooted in the President’s proclivity to take bad economic advise that would haunt him throughout his presidency. We know from David Axelrod’s book that the Obama transition did urge the Bush administration to provide TARP loans to GM and Chrysler to keep them in business. So it was OK to help auto companies prior to Inauguration Day, just not homeowners. A particularly disturbing position to one like me who had supported him surmising that he would govern diametrically opposed to how I felt Hillary would have when it involved Wall St. Banks
The Obama transition team wrote a letter promising to get to the foreclosure relief later, if Congress would only pass the second tranche of TARP funds. Congress fulfilled its obligation, but the Administration didn’t. The promised foreclosure mitigation substandard efforts failed to help, and in many cases abjectly hurt homeowners.
I suppose those reviewing ”Frank” can offer an excuse about this being “old news,” but that claims suffers from the “tree falling in the forest” syndrome: if a revelation is made in public, and no journalist ever elevates it, did it make a sound?
The political media’s aversion to reporting controversial policy early in Obama’s first term is a clear culprit here. Jamie Kirchick’s blanket statementin his review of “Frank” that “readers’ eyes will glaze over” at the recounting of the financial crisis is a typical attitude. But millions of people suffered needlessly for Wall Street’s sins; they’d perhaps be interested in understanding why.
That’s the main reason why the significance of Obama’s decision cannot be overstated. The fact that we waited six years to get some semblance of a decent economic recovery traces back directly to the failure to alleviate the foreclosure crisis. Here was a pivotal moment, near the beginning, when both public money and leverage could have been employed to stop foreclosures. Instead of demanding homeowner help when financial institutions relied on massive government support, the Administration feebly passed, instead prioritizing nursing banks back to health and then asking them to give homeowners a break, which the banks predictably declined to do.
understand, there were no structural or legislative barriers to this proposition. One man, Barack Obama, could tell another man, Henry Paulson, to tighten the screws on banks to write down loans, and something would have happened. Would it have been successful? Would it have saved or hundreds of billions in damage to homeowners? Even trillions? Or would Paulson and his predecessors have found a way to wriggle out of the commitment again? We know the alternative failed, so it’s tantalizing to think about the positive affects this road not taken might have provided when it mattered most.
This still matters because, as City University of New York professor Alan White explained brilliantly over the weekend, the foreclosure crisis isn’t really over. Though 6 million homes have been lost to foreclosure since 2007, another 1 million remain in the pipeline, many of them legacy loans originated during the housing bubble. If you properly compare the situation to a time before the widespread issuance of subprime mortgages, we’re still well above normal levels of foreclosure starts.
In addition, over one in six homes remain underwater, where the mortgage is bigger than the value of the home, a dangerous situation if (when) we hit another economic downturn. And up to 4 million homes face interest rate resets from temporary modifications, along with nontraditional mortgages where the rate is scheduled to go up. Home equity lines of credit are also nearing their 10-year limits, requiring borrowers to pay down principal balances. Some Americans have been waiting over five years in foreclosure limbo, which sounds great (no payments!) until you understand the stress and anxiety associated with not knowing if you will get thrown out on the street at any time, something highly correlated with sickness and even suicides.
In baseball terms, we’re actually in the seventh or eighth inning of the crisis. And Barney Frank detailed how the president-elect had the opportunity to call the game and fix the problem much earlier, which he turned down. You’d think someone would have noticed. I think they did notice. I have written extensively (I’m Relinquishing My Dream of a Wall Street Perp-Walk~October 24, 2012~By HGold,
to name just one) about my extreme disillusionment over Wall St. perpetrators escaping unfazed, unprosecuted, and unrepentant over the criminal frauds that the U.S. taxpayer had to endure due to malfeasance use of public commercial (as opposed to investment) funds.
I feel strongly that Elizabeth Warren would not have let this travesty of fairness go unresolved, but to my extreme dismay it doesn’t look as if any branch of of the country’s checks and balances besides Senator Warren are looking out for the welfare of our citizens that continues to be a secondary concern to corporate and Wall St. sacrosanct practices of malfeasance and disregard for the public good.
Harvey A. Gold