There is an old saying among experienced economic policymakers, “in a major crisis, do not err on the side of being insufficiently bold.” And we know that President Obama’s economic team are avowed proponents of this approach.
The housing plan unveiled yesterday is impressively comprehensive – I go through some of the details in a post this morning on The New Republic’s Site. But is it bold enough?
The parts dealing with conforming mortgages, thus involving Fannie and Freddie, are very much in line with what we have been advocating – these organizations now work for the government, so put them to work. The scale of this piece seems roughly appropriate.
The Administration feels it cannot currently approach Congress for more funding, and this is presumably why there is so little funding in the remainder of the housing plan – and, remember, we know that many modified mortgages will later default again. If this assessment on the lack of funding is correct – and I’m not convinced – at the very least it suggests the Fiscal First strategy was not such a great idea.
And this has implications for next steps. If you think there is even a moderate chance of needing more funding down the road, wouldn’t it be better to start a serious conversation now with Congress? In particular, a more holistic approach – with banking and housing included – is surely the right way to frame that interaction.