As Alana has written, the Obama administration’s announcement that it is implementing new rules that will enable “underwater” homeowners to reduce monthly payments and cheaply refinance their mortgages will probably have a minimal effect on both the housing situation and the economy. It’s all part of an all-out push to circumvent Congress and portray the president as the man trying to help struggling Americans while Republicans are fiddling as the country burns. But as much as helping people avoid foreclosure is an easy win for the Democrats, if we stop and think about it, this is exactly what helped get the country in bad economic shape in the first place.
The 2008 recession was set off, after all, by the floating of too many bad mortgages via heavily subsidized federal loans that were turned into junk securities. Though sympathy for those trying to hold onto their homes in tough times is almost universal, it’s far from clear this extra help will make much of a difference in the long run for many of these mortgages that may be heading inevitably toward foreclosure. The real beneficiary will be the banks — which Obama has been bashing non-stop —holding these potentially bad loans. Though this might give the nation a short-term jolt, it remains to be seen whether Obama’s move towards a more imperial presidency in which he uses regulations to direct more of the economy will benefit the economy or his sinking chances of re-election.
On the surface, this is a win-win idea for Obama. His liberal critics have been longing for him to act as if he is in charge and to seize the initiative from Congress. Since the thrust of the president’s counter-attack against Republicans these days is to portray an already unpopular Congress as a “do nothing” body, this is the sort of gesture that might boost his sagging popularity. Yet by injecting the government even further into a housing sector that has already been distorted by past interventions, Obama could be setting the stage for more trouble, as this program may merely help to put off the moment when the housing market hits bottom, which is when recovery can begin. It will only be then that the banks Obama has been pounding for their reluctance to throw good money after bad can start lending more money again.
Programs that provide the illusion of action while doing nothing to deal with underlying issues are a mainstay of struggling incumbent politicians. But the fact remains the president is stuck with a bad economy he has made worse by profligate spending. Government action, whether it is helpful or not, seems to be the spirit of the Occupy Wall Street demonstrations that Obama has embraced, but it’s not clear a presidential power grab is sustainable either economically or politically. Throwing a life preserver to sinking homeowners may seem like the right thing to do, but if the swimmers wind up drowning anyway, this won’t have helped the country or Obama next November.
That the only real winners in this transaction are the very financial institutions Obama has been attacking shows how out of touch the president’s rhetoric is from economic reality.
