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.