Ezra Klein wrote a post, What Could Obama Have Done?, with a Part II followup, arguing that you “can believe Obama has made pretty significant mistakes, as I do, but also find yourself pessimistic as to the difference a flawless performance by the president — as opposed to a flawless performance by the Federal Reserve or the Congress — would have made to the economy.”
What are some suggestions for what Obama could have done early in the administration? Brad Delong has some. I’ll add my own.
1. Use eminent domain to purchase MBS and then writedown the debts to manageable levels. Legal, a huge move, but with some precedent in the HOLC. This would have been Obama’s equivalent of Executive Order 6102. It would have been an extraordinary action but so is the Recession we are going through.
1.a Indeed TARP was Obama’s Execuitve Order 6102 – he could be funding an infrastructure bank with it right now if he was willing to push it but is choosing against that. It explicitly has the funding he wanted on mortgage relief that hasn’t been spent through HAMP. He could have done a ton with it. With the exception of the auto industry bankruptcies, TARP wasn’t used aggressively enough.
2 FYI when it comes to protecting the banks, Obama has been willing to go to great lengths to avoid Congress. Look at the Public-Private Investment Program for Legacy Assets (PPIP) program – often referred to as the early 2009 Geithner Plan. That plan involved using FDIC funds to try and get private money to overbid the toxic assets on the banks’ books. Though there was the nudge and the public put-option, private capital wouldn’t step up – it’s was a job the government needed to do. But it was tried and created in such a way to avoid Congress entirely.
As interfluidity said at the time (March 2009):
Is that it, then? You know, the “Public Private Investor Partnership” that the Treasury Secretary introduced on Monday. Are we doing that?
The plan involves the Treasury, FDIC, and Federal Reserve putting hundreds of billions, perhaps more than a trillion dollars, at risk. That should require some sort of Congressional approval, right?
Nope. It didn’t. Clearly this wasn’t the intention of the FDIC fund they were leveraging, but Treasury went with it anyway rather than go back to Congress for more TARP for the banks. And other things could’ve been done along the same lines that involved getting the homeowner market under control instead of shoveling put options and free cash to hedge funds that never showed up.
3. FHFA could writedown mortgages under safety and soundness criterion with homeowners taking a shared appreciation clause – writedown for a loss now, and then taxpayers get part of the upside later. As Adam Levitin suggested to me, that structure of shared appreciation would look a lot like the TARP warrants that were given to shadow banks during the crisis. A TARP for Main Street that isn’t a slogan but an actual policy tool here. New Bottom Line has additional suggestions and numbers along this approach.
4. FDR was pretty straightforward about what he wanted the price index and monetary policy to do under his administration and the actions they’d take to bring it about. Getting the Federal Reserve to go didn’t seem to be a concern for the administration one way or the other.