Reuters thinks that the Administration is working towards an "August Surprise:"
Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.
We know nothing can get through the Senate. But we can't just do nothing. This should be just a first step. Even a Serious Centrist like economist Brad DeLong had an idea of how we could harness the GSEs as of January 2009:
My favorite idea right now is that of nationalizing Fannie Mae and Freddie Mac completely and unleashing them to buy up every single mortgage in the country at market rates. Their ability to borrow at the Treasury rate means that they should be able to make money by doing this. When they own mortgages they can renegotiate and refinance them all with the public interest in mind. And as they squeeze banks out of the mortgage business the fact that banks are looking for yield should push other financial asset prices up--and make it possible for those businesses that should be expanding to get financing right now on terms that make expansion profitable.
So at the moment my preliminary judgment of the Obama fiscal boost is that it is a good first bid, but that the administration ought to be doing a lot more.
It is still possible now to do this. Doing nothing is not an option. Will it work? This is what Goldman Sachs is "warning" its customers (again from the Reuters article):
The Treasury’s essentially unlimited ability to provide financial support to the GSEs creates an interesting situation over the next twelve months: the GSEs could potentially be used to provide additional support for the housing market and, to a lesser extent, the broader economy
Damn right. I imagine there will be push back from Wall Street. Considering the fortunes of real hard working Americans and the Lords of Finance, anything that scares the shit out of them can't be all bad.
Because people are hurting, and if we can't convince the douchebag from Nebraska and his Republican friends of that, we should just go around them.
Labor mobility has fallen to a post WWII low - and this is weakening an already weak recovery. Apparently August 17th is when this will be decided.
The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie.
This could help prevent a double-dip recession, avoiding the worthless cesspool that is the Senate, and genuinely help millions of people. Conveniently right before an election, but that is just a bonus. I know I criticize Obama for a whole lot but when he tries to do something right, we have to his back. I am not sure who we should be contacting, but I just wanted as many people to know about this as possible.