Interfluidity at Treasury

Steve Waldman wrote up last Monday’s Treasury meeting in a must read post. I wish I had written it, it captures both the meeting and how Treasury looked to people on our side of the meeting.

When it comes to the new talking points on HAMP Steve gets it written better than I did:

The conversation next turned to housing and HAMP. On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.

Yup. Confusing the health of the financial system with a time-delayed health in the lives of ordinary Americans has been a problem here. I’m going to call this a major win for Tracy Alloway at FT Alphaville who pointed out in Hamp, what is it good for?, back in December of 2009, that:

Given all of the above, readers might well be scratching their heads as to what the Hamp is actually good for. And on that point Barclays is very clear — shadows and cans….[quoting Barclays] even as foreclosures keep rising, the REO bucket has gone down. So kicking the foreclosure ‘can’ down the road has helped prices stabilize.

Intuitively, if there are millions of foreclosures to still work through the system, it is better to spread them over a few years than have them hit the market in six months – this prevents prices from over-correcting to the downside. And with the Administration focused on modifications, we expect long delinquency-to-liquidation timelines to help home prices.

I remember reading that last winter and thinking that even I wasn’t that cynical about Treasury that this would have been the motivating factor, rather than a “look busy” style of make work. Imagine my surprise when 8 months later senior Treasury officials are sitting across a table from me explaining that the Barclay’s reasoning about massaging foreclosure rates and expanding the delinquency-to-liquidation timeline is a major policy achievement. Boo hiss.

Also check this out from Waldman:

Amid the talk about flagging demand, blogger John Lounsbury had the courage to “drop a stink bomb”, as he put it. He said that in his view, the United States needed to move from a consumption to a production oriented economy, and that we ought to use the tax system to get there, increasing taxes on consumption and reducing taxes on capital. I agree with John that the US economy needs to shift so that it produces as much value as it consumes (see below) but I’m entirely unenthusiastic about this sort of tax policy. John’s proposal amounted to a full U-turn from our how-to-inspire-demand conversation, but the Treasury official with whom we were speaking didn’t miss a beat. He nodded sympathetically, and said that while he couldn’t discuss specifics of what the deficit commission was doing, they were doing good work. I left with a serious case of heebie-jeebies about what the deficit commission might be up to, but no details at all.

I should have mentioned this before but I wanted to double checked something on my end. The senior Treasury official made the point that the deficit commission was doing good work coming up with a politically feasible potential solution to Social Security. Huh? Just Social Security, nothing else was mentioned. Heebie-jeebies, but no specific details, and sadly the meeting progressed too quickly to get follow-up questions into the discussion. Just a quick mention, but enough to make me dedicate more of this blog to following the deficit commission throughout the rest of this year.

I’d encourage you to read the entire thing by Waldman.

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4 Responses to Interfluidity at Treasury

  1. Petey says:

    “I remember reading that last winter and thinking that even I wasn’t that cynical about Treasury that this would have been the motivating factor”

    Deep, deep cynicism should be the default response to pretty much all policy coming out of this administration. You’ll be right 90%+ of the time.

    “The senior Treasury official made the point that the deficit commission was doing good work coming up with a politically feasible potential solution to Social Security. Huh?”

    Welcome to the 112th Congress.

    This administration is about two things: trying to win streaks of news cycles, and the long-term Preservation of the Brand™. It’s not about using their power to help effect policy in the public interest.

    That was their attitude in the current Congress, and the 112th Congress will give them an opportunity to be themselves on steroids.

    This time the Mayberry Machiavellis are running the shop wearing the uniforms of our team…

    • Ted K says:

      Personally, I hold Rahm Emanuel responsible for this. Someone labeled him a “Jewish LBJ” and I don’t think that description is too far off. Only maybe LBJ had better interpersonal skills (yes, that may seem funny, but I mean that seriously).

      Unfortunately Rahm spends too much time tabulating political points on some weird periodic calendar time, and he is slowly killing the natural, sincere enthusiasm and energy President Obama’s supporters had for him. The delayed and sputtering support (or really lack thereof) of Elizabeth Warren for CFPB is a prototypical example of that. It’s like Rahm had a huge balloon of political energy about to explode and he said “Wait Mr. President, Let me see if I can prick a hole in this balloon and replicate fart noises with it”.

      That and Larry Summers equating large (oligopolistic) bank profitability with general economic policy success.

      • Petey says:

        “Personally, I hold Rahm Emanuel responsible for this … That and Larry Summers”

        Y’know, as a wise man once said, the cossacks do work for the czar.

        Barack Obama marked his ground as an Evan Bayh / Joe Lieberman style Senator in 2005-2006.

        Barack Obama ran to the right of the Democratic primary field in 2007-2008.

        Occam’s razor would thus suggest that Barack Obama is now presiding over precisely the kind of administration he wants.

        Ben Smith had a smart comment a couple of weeks ago during Robert Gibbs-gate, where he said that the feeling throughout the WH was that they were there despite the Democratic Party, not because of the Democratic Party.

        Viewed in that light, the problem goes much deeper than just a bad apple or two in the barrel…

        “Unfortunately Rahm spends too much time tabulating political points on some weird periodic calendar time”

        I’ve got no problem with wise strategery employed in the service of good ends.

        The problem is that the ends of Rahm’s strategery have little to do with the policy aims or political aims of the Democratic Party.

        Rahm is a perfectly competent soldier. He’s just off executing a bad mission.

      • Petey says:

        “Someone labeled (Rahm) a “Jewish LBJ” and I don’t think that description is too far off. Only maybe LBJ had better interpersonal skills (yes, that may seem funny, but I mean that seriously).”

        To take this on its own, well:

        Both Rahm and LBJ have/had the ability to raise money and the knowledge of how the Hill works. They are indeed similar in that way. It makes them both powerful. And LBJ did indeed have better interpersonal skills than Rahm.

        But LBJ used his power (both in the Senate and WH) to do 2/3rds public good and 1/3rd political evil. During Rahm’s career so far, he’s used his power to do 1/3rd public good and 2/3rds political evil.

        Fully judging Rahm depends on determining how much agency he has in this administration’s relentless production of Mayberry Machiavelli policy. And, as stated upthread, I think Rahm is partly just an errand boy here, albeit a powerful one. If you want real villains, look towards Axe, Valerie, and the Man himself.

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