Foreclosed On A Legacy

David Dayen pulls no punches in this hefty piece on the government's response to the foreclosure crisis, placing the blame for wiping out America's middle class squarely and solely on President Barack Obama.

Politicians, economists, and commentators are debating the causes of the rise in inequality of income and wealth. But one primary cause is beyond debate: the housing collapse, and the government’s failure to remedy the aftermath. According to economists Emmanuel Saez and Gabriel Zucman, the bottom 90 percent of Americans saw one-third of their wealth wiped out between 2007 and 2009, and there has been no recovery since. This makes sense, as a great deal of the wealth held by the middle and working classes, particularly among African Americans and Hispanics, is in home equity, much of which evaporated after the bubble popped. The effects have been most severe in poor and working-class neighborhoods, where waves of foreclosure drove down property values, even on sound, well-financed homes. Absent a change in policy, Saez and Zucman warn, “all the gains in wealth democratization achieved during the New Deal and the postwar decades could be lost.” 

President Obama will carry several legacies into his final two years in office: a long-sought health care reform, a fiscal stimulus that limited the impact of the Great Recession, a rapid civil rights advance for gay and lesbian Americans. But if Obama owns those triumphs, he must also own this tragedy: the dispossession of at least 5.2 million U.S. homeowner families, the explosion of inequality, and the largest ruination of middle-class wealth in nearly a century. Though some policy failures can be blamed on Republican obstruction, it was within Obama’s power to remedy this one—to ensure that a foreclosure crisis now in its eighth year would actually end, with relief for homeowners to rebuild wealth, and to preserve Americans’ faith that their government will aid them in times of economic struggle. 

Faced with numerous options to limit the foreclosure damage, the administration settled on a policy called HAMP, the Home Affordable Modification Program, which was entirely voluntary. Under HAMP, mortgage companies were given financial inducements to modify loans for at-risk borrowers, but the companies alone, not the government, made the decisions on whom to aid and whom to cast off.

Dayen's reporting on HAMP and the foreclosure crisis, at least the facts on it, are impeccable.  I disagree with the notion that Obama is responsible for destroying middle class wealth, however.  It seems to me that the actual bad guys remain the banks whose greed nearly wiped out the global economy, and still may do so.

Could Obama have done more?  Yes.  And so could Congress.  But they didn't.  After all, the banks had long ago made what they did to be legal, and they did it before Obama was ever in the Oval Office.

But the reality is Dayen is right on a couple of points:  Obama could have done more, should have done more, and chose to triage instead, to save the kids from the fire and let the house burn down.  We did him no favors by bringing in more Republicans who wanted the country destroyed, and given the circumstances, he did what he could.  And HAMP was a goddamn mess that hurt people more than it helped.

But we're going to have to live with this mess, and the fact is whether it's Obama's fault or not, the middle class in this country is a smoking wreck.  For black and Latino families, the devastation is absolute and Dayen makes the very strong case that Obama simply wasn't prepared in order to do it.

Dayen ends with this observation:

Perhaps the worst legacy of the failure to stop the crisis is the impact on trust in government itself. HAMP’s predatory lending schemes reinforced the old Ronald Reagan dictum that the most dangerous words in the English language are “I’m from the government and I’m here to help.” How do you tell families who signed up for an aid program that ended up actively harming them to ever believe in government again? 

Particularly for a president like Obama, who entered office on a promise of activist government, with ardent backing from communities of color victimized by the crisis, the decision to protect banks over homeowners was debilitating. A tide of cynicism swept out Democrats in the last midterm elections, with voters more skeptical than ever that government can solve problems, or take the people’s side over the financiers. Two-thirds of voters in exit polls found the economy to be rigged for the wealthy. 

“The consequence of these decisions was the disillusionment of his base in believing that political action is going to work,” says Damon Silvers. “They weakened the Obama presidency in ways he could never recover from.”

And this part?  This part I can't argue with.  We're going to be dealing with the damage from this for a very, very long time, both economically and politically.  I don't like it, but it's time to admit that while Obama did champion a lot of things, primarily the Affordable Care Act, it came at a cost. Whether or not that cost is all on Obama's head, or if there was just too much damage form Bush and Clinton for anyone to clean up, whether the GOP actively sabotaged everything, of it Obama had the tools to fix them and instead surrounded himself with people who actively chose to leave the middle class to twist in the tornado, all that's largely irrelevant.

What's relevant is the magnitude of the damage that still remains after HAMP.  In much of America the housing market is still broken beyond repair.

We'll all be paying that cost for a very long time.