Sunday, May 01, 2016

Did Obama Sabotage his Mortgage Relief program?

May 2016
  
In January 2008, when Senator Obama was running for the Democratic nomination  for president he shocked many  Democrats when he went out of his way to praise President Ronald Reagan. It was impossible at the time to know what he meant, but it now seems clear that he was signaling his intention to govern not as a reformist Democrat, but as someone who would oversee the world on fire --- a world where Donald Trump can seriously vie for the presidency.

The way in which he sabotaged his own mortgage relief program – HAMP (Home Affordable Modification Program) – ensuring that in most cases no relief would be forthcoming --  stands as  a model of his retrograde and intentionally destructive agenda.

A follow-up article will outline a theory explaining his motivation.
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Obama Inherits 15 Million Underwater Homeowners

At the heart of the Great Recession of 2008 were the millions of underwater homeowners -- those whose mortgage debt had risen more than 20 percent higher than the value of their homes.  At the peak of the 2008 crisis, there were 15 million underwater  homeowners. By late 2015, their numbers had dropped, according to various estimates, to as low as 4 million – or as high as 7.4 million.

That the numbers had fallen from their highs were no thanks to the Bush administration which was nearing the end of its term -- nor did their Republican party remit do more than barely feign interest in such matters.

‘What about the incoming Obama administration? Supporters of the new president might have expected that helping distressed homeowners would be a priority since a goodly number were surely among his core constituency. Not to mention  assisting more than 10 million families would provide a  crucial boost to the economy and would immeasurably strengthened his party and burnish his national appeal. Yet, apart from lip service and misleading press releases, the Obama administration turned out to have just as little interest as had its predecessor in assisting Main Street.  Indeed, looking back, we can now see that, just like his predecessor, his agenda, when he entered office was to block aid to homeowners, despite its negative effects on the economy.
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Two books that emerged in 2012 which trace  the Obama administration’s  refusal to assist  middle and lower class homeowners  are Neil Barofsky’s Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street; and  Sheila Bair’s Bull By the Horns: Fighting to Save Main Street from  Wall Street and Wall Street from Itself . Both books are insider accounts attesting to the authors’ struggles against the Treasury Department run by Timothy Geithner.

Indeed, it turns out that Geithner was basically following White House orders. Neither books come right out and nailing President Obama as chiefly responsible for setting US policy, but there can be little doubt that Geithner acted throughout with the complete backing – and understanding of the White House.  By 2012 and certainly by the time I read the Barofsky and Bair books in 2014 and 2015, I was clear that President-elect Obama chose Geithner because he understood that the former head of the New York Federal Reserve (and tax dodger) favored Wall Street over Main Street on principle and would act accordingly. It was evident that   Obama chose Tim Geithner to be his point man blocking reform.

In the spring of 2012 I had  blogged on the homeowner crisis issue when evidence emerged that, as he began his third year of office,  President Obama was again breaking his promises. A  New York Daily News op ed  revealed the administration’s treachery. The two authors of the op-ed, Mike Gecan and Arnie Graf, had hoped that at long last, the president was indeed serious about “speeding assistance to homeowners.” That many were still suffering there was no question.  Gecan and Graf reported that in 2012 there were 12 million homeowners who were collectively $700 billion underwater. The writers were exercised when they found that the administration’s newly formed “Residential “Residential Mortgage-Backed Securities Working Group” was a sham even though it was to be co-chaired by high profile New York Attorney General Eric Schneiderman. 

They cited the experience of a hopeful Schneiderman who twice travelled to Washington to take up his duties with the mortgage fraud Working Group. There he found that there was no sign of an office, no phones or phone number, and no staff. According to their op-ed,  this newly formed group was the sixth such group that the White House had created  and  the total number of staff hired for the previous five groups, “according to  a surprised Schneiderman,” was one! 

By 2013 White House’s opposition to supporting Main Street was so widely understood that half a dozen states attorney’s general for a time refused to sign off on the administration’s clearly insufficient plan to stem mortgage fraud. They couldn’t support a program whereby the government offered merely $25 billion which was  merely !0% of what homeowners who were victims of “predatory banking practices”  required.
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A little hint from Barofsky?

President George W. Bush had appointed Neil Barofsky Inspector General to monitor the $700 billion bank bailout program called TARP – the Troubled Asset Relief Program.  Barofsky’s oversight position was created as a concession to Congress which had hoped to ensure that at least a portion of the bailout funds would go to struggling homeowners. A  Democrat, Barofsky,  was chosen for the post of SIGTARP –Special Inspector General of TARP --  largely because Congress hoped to put in place  a man who would stand up to powerful banking interests. He had been serving with distinction for the past eight years as Assistant District Attorney for the Southern District of N.Y.

Barofsky recounts an incident from early in Obama’s presidency that had dismayed and confused me and later made me reconsider what I took to be the new president’s priorities.  
In February 2009, President Obama spoke at the Dobson High School gymnasium in Mesa, Arizona to announce a $50 billion mortgage modification program. Arizona was an  appropriate venue for Obama’s presentation, reeling, as it was, from an avalanche of foreclosures,. Barofsky points to some of the statistics:  Nationally there  were  “2.3 million properties receiving foreclosure fillings and more than 900,000 bank repossessions in 2008 alone.”  Unemployment had shot up  2% in the previous six months.

Behind the scenes, even while many were heartened by Obama’s speech, Barofsky and his team were concerned -- as well as was Sheila Bair for slightly different reasons (see below).Especially worrying was that Treasury hadn’t given SIGTARP any details about the program even while it was announced that the plan guidelines would be issued in two weeks. Barofsky felt it was too short a time “put together a well thought out program.” Barofsky’s office was in the loop because SIGTARP was created to oversee government expenditures on these programs and to insure a clean, fraud-free disbursement of funds. (Barofsky 124-127)

The day after the president’s mid February announcement in Arizona, Barofsky was working with his colleagues in his Washington office with the TV in the background when they heard some shouting. They looked up at the TV monitor and saw

Rick Santelli, a CNBC anchor, in midrant against the new TARP mortgage modification program. He described it as a plan for "losers" and compared it to Castro's Cuba. At one point, he turned to the roaring traders on the floor of the Chicago Mercantile Exchange and asked, "How many of you people want to pay for your neighbor's mortgage that has an extra bathroom and can't pay their bills? Raise their hands.” Finally, in a phrase that would change the landscape of conservative politics in the country, "We're thinking of having a Chicago tea party in July.”…
Santelli’s rant , and the political movement it inspired, hung over the [SIGTARP] program for the rest of my time in Washington. (p. 127)

In February 2009 I wondered if Rick Santelli was to have the last word  -- if his rant would  be sufficient to kill U.S. action to help underwater homeowners.  Barofsky’s narrative  helped remind  me that Santelli’s rant came just a day after the president’s announcement and suggested an otherwise outlandish conspiracy theory – defined as any theory not sanctioned by the authorities and their media messengers.  I wondered if the Obama administration may have had a hand in engineering Santelli’s high profile public relations attack on his own mortgage modification program -- perhaps via a leak from someone in Geithner’s Treasury Department, 

I wondered how Santelli could know in advance that President Obama’s program would allow “losers” to mooch on government largess? Barofsky writes that the details of the program, “the nuts and bolts of how the program would work” were not yet in place, and so could not yet be public information.  President Obama, in his remarks in Arizona, had emphasized that his plan would focus on “rescuing families who've played by the rules and acted responsibly.” The president was careful to emphasize that his plan

will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans.  It will not help … speculators who took risky bets on a rising market and bought homes not to live in but to sell.  It will not help dishonest lenders who acted irresponsibly, distorting the facts and dismissing the fine print at the expense of buyers who didn't know better.  And it will not reward folks who bought homes they knew from the beginning they would never be able to afford.  So I just want to make this clear:  This plan will not save every home.  (my emphasis)

While Santelli might have simply ignored Obama’s cautious guidelines and rushed to judgment about the way “losers” and speculators might get their hands on taxpayer funds, how could he know –without a heads up – that his remarks would not face a strong White House inspired rebuttal from sympathetic spokespeople inside and outside government?  Santelli’s reference to the Tea Party later made me wonder if the White House and Treasury actually welcomed and encouraged Tea Party and Republican opposition.

The White House rebuttal never happened. By not engaging in strong pushback, the White House was effectively green-lighting the upcoming Tea Party campaign and Republican and grass roots opposition.
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Shelia Bair

Widely perceived as an effective reformist and an opponent of banks that were “too big to fail,” Sheila Bair served as Chairperson of the Federal Deposit Insurance Corporation from 2006 to 2011 -- two years into Obama’s term.  Bair also found Timothy Geithner to be her bĂȘte noire, forcing her to work around the obstacles he often put up, as she did her best to work for the public interest. Well before the end of her term it was clear that she would not be reappointed by the Obama administration.

Cheating homeowners, not helping

As it happened, Sheila Bair was at the president’s side in Arizona when he announced his home modification program. Bair cringed when the president announced that he aimed to help three to four million homeowners.  She was vexed because she understood that Obama was announcing figures he should have known (or surely knew) were inflated. Her own, more aggressive, program –turned down by Treasury -- would at most help about 1.2 million homeowners.  History proved her right when three years later, by the time she wrote her book, fewer than 900,000 homeowners were making lower modified payments. 

Worse than merely inflated claims, an adverse effect of the White House’s inadequate program, was that about a million  homeowners were cruelly  thrown into foreclosure by the program even though they had been making timely modified payments for months. These homeowners had signed up for “trial modifications” -- an administration idea to quickly announce high numbers – but were later informed that they had not filed all the extensive documentation required.  Thus more homeowners suffered than were helped as the unlucky ones were duped into premature or unnecessary foreclosures.  .

Geithner’s motive vs Obama’s

Geithner’s motive for blocking aid to Main Street is comprehensible, though reprehensible. He seems to have viewed his area of responsibility as a zero sum game: i.e., his policies reflect the view that help for Main Street conflicts with the interests of big banking and Wall Street. What’s clear is that Tim Geithner should have been among the last people tapped by a Democratic president to administer programs so critical to the middle class and others.  Nor is it accidental that regimes such as Bush’s and Obama’s should especially target the middle class since they are the ones with the wherewithal and the interest in challenging injustice and inequity.

The question remains: Why did Obama choose someone like Geithner who represented the interests of the 1%, or perhaps more accurately the .001%   Why didn’t  Obama  take seriously his mandate to serve the national  interest?

What was Obama’s motivation?  Why would he deliberately sabotage his own constituency, his own reputation and that of his party, not to mention the health of the US economy and the resulting international ramifications? Why did he pursue a malevolent agenda? Why did he become the more effective evil, institutionalizing retrograde and destructive policies?  Why did he act in a way that would make him so unpopular and so weaken his party? Why would he deliberately give up the opportunity to gain public acclaim and enhance his legacy?

One thing we can construe from the Barofsky and Bair narratives is that they portray an Obama administration that has not been passive. Barack Obama has not been conflict averse, nor disengaged. The president’s destructive and obstructive record instead bespeaks an aggressive, focused, determined mind, equally as  ruthless and relentless as the people he placed in powerful positions.

Obama’s appointments to senior and mid-level positions all-too-often represent the president’s counterintuitive agenda. Geithner was not alone in subverting the policies that Obama’s supporters hoped to see. There were and are too many others -- often Republicans -- who continue to serve as Obama's point men and women, pursuing policies antithetical to the hope and change the country and the world so sorely needed. Some of their names are Eric Holder, Larry Summers, Robert Gates, James Comey, David Petraeus, John Brennan, Michael Hayden, Hillary Clinton – and more..

Barack Obama is, or ought to be, known by the company he keeps.

The End