Will Obama Be Able To Do Anything About The Banksters Who Are Wrecking The Economy?

Today's NY Times has some ostensibly good news: at 5% the average home mortgage rate is the lowest in decades. It's a nice announcement. But Times writer Tara Siegel Bernard asks the wrong question as a follow-up: "What is not clear, however, is whether rates are attractive enough to lure a significant number of home buyers back into the ailing housing market." The home buyers are not the problem. The irrational unavailability of credit-- or more specifically, banksters-- is what the problem is.

Combine the lowest mortgage rate since 1971, when Freddie Mac started tracking them, with yesterday's announcement of a deal between Congress and Citigroup to allow bankruptcy judges to modify mortgage terms, and it looks like everything's comin' up roses. Not so fast, amigo.

The other day the realtor who's helping my friend Roland buy his first home told us that two-thirds of the houses that go into escrow are falling out. He's been dealing primarily with bank-owned properties for the last year. But it isn't any better on the top end of the market either. In Los Feliz, the L.A. neighborhood where I live, homes have been on the market for over a year-- some for way over a year. And foreclosed homes are starting to sell for startlingly low prices. One of my friends in a similar neighborhood found a buyer for his 8,000 square foot suburban home for $2.4 million. The well-heeled buyer offered to put up 30% in cash and he was certainly qualified in every way from here to Sunday. Except the lending-shy bankers didn't see it that way-- Loan Denied. No sale.

The government infused billions and billions of taxpayer dollars into the banking system. What are the banksters doing with the money? That's not rhetorical. I really would like to know. Meanwhile members of Congress are congratulating themselves on their deal with Citibank, calling it a "breakthrough" and pledging to add something like it to Obama's economic stimulus package as part of forecloseure-prevention.

Although the support of the banking industry would not guarantee passage, they said, it would go a long way toward breaking down opposition among Republicans and "moderate" [Blue Dog and other right-wing hack] Democrats who torpedoed the idea in the Senate last year. And lawmakers have yet to win the support of the Mortgage Bankers Association, a large lobbying group that has previously helped defeat the change.

...Industry officials fought off the legislation, but the political calculations have changed. President-elect Barack Obama has said he supports the change, Democrats have a larger majority in Congress, and banks that have accepted federal aid are facing pressure to do more to help homeowners. Citigroup, for example, received about $45 billion in government assistance last year.

Also, the foreclosure crisis has worsened in the past year, and industry and government efforts to keep people in their homes have had little impact. If the legislation passes, it could secure the kind of concessions the government has not been able to get from the industry through various voluntary foreclosure-prevention efforts.

Let's hope E.J Dionne is correct that Obama is playing this right and bringing conservatives, particularly right-wing Democrats, along.

The effort to win over the more conservative Democrats is working. On Wednesday, for example, Rep. Jim Cooper, also of Tennessee and a leading advocate of entitlement reform, praised Obama for insisting that "we can stimulate the economy and address our long-term problems at the same time."

Obama may also face a conflict between getting his package passed fast and having it contain the most effective proposals. Many economists, particularly but not exclusively liberals, argue that government spending programs stimulate the economy more quickly than tax cuts. Recipients of tax cuts might choose to save rather than spend the money they get back or use it to pay down debt.

Obama solves this problem in part by focusing much of his tax relief on middle- and low-income Americans, who are more likely to use the money for consumption. And the bulk of the package involves new spending, particularly on infrastructure and new environmental and technological investments. He is also pushing programs especially important to liberals: increases in unemployment benefits and food stamps, and fiscal relief to states for Medicaid and education expenditures.

..."Only government can break the vicious cycles that are crippling our economy," Obama declared yesterday. Considering how profoundly this view contrasts with the old conventional wisdom-- "the era of big government is over," "government is the problem"-- it may be worth making a few concessions to put the country on a very different path.

He's not as savvy as Dionne but this morning my mortgage broker sent me these tragic tidings of the reality of 8 years of Republican misrule:

• 5 million seniors live on less than $10,000 annually

• 29% of Americans skipped treatments, tests or prescriptions because of costs.

• 25% of seniors survive on social security alone.

• An estimated 5 million regularly sacrifice food to pay bills.