Hagiography Gone Wrong

Mike the Mad Biologist:

What killed Democrats, even though the illness wasn’t recognized until Nov. 9, 2016–and despite the constant down ballot shellacking the Democrats took for years under Obama–was his reaction to the housing crisis. There were two things he needed to do, and which he failed to do. Moreover, he had complete authority and ability to do these things–there’s no conceivable way the Green Lanternists can claim otherwise.

The first thing he should have done is prosecuted people up and down the mortgage chain for fraud, from lying appraisers (though they, on the whole, were the most honest of the bunch), to the loan originators, all the way on up to the CDO merchants at the investment banks. People, left, center, and right, hated these bastards. Not only would this have been popular–though a candidate who spent a lot of time raising money from Wall Street might not realize this–but it also would have put an iron fist in Obama’s velvet glove (the velvet glove by itself doesn’t do much).

Second, there should have been no bailout whatsoever unless the banks agreed to mortgage cramdown. In short, mortgages are reset to the current market value, and the banks take a partial haircut (along with their investors and shareholders) with the government eating the rest (a 50/50 split would be good). Down the road, if homeowners sell the rescued home, a large share of the profits (~50%) is paid in taxes (you get to keep your home, but there’s a cost to you as well). If this meant some of the large banks went under, well, we know how to unwind banks (we’ve been doing that since the Great Depression)–and there were certainly a lot of unemployed people in finance who needed the work. But we got a program inaccessible to millions of households, and when people could use it, was woefully inadequate to the task at hand. Again, it’s important to note that Obama had all of the authority and funded he needed to do this. Instead, he used that authority to “foam the runway” for the banks, as opposed to providing a life-line for homeowners.