Here is Bruce Bartlett - a formerly conservative, now exiled economist - discussing Nixon's massive unilateral intervention in the economy 40 years ago. As Bartlett notes, the the specific program was unsuccessful and this may be why subsequent Presidents (including Obama) have been reluctant to act unilaterally on domestic issues:
On August 15, 1971, Richard Nixon implemented the most radical economic program in American history. And it was all done over a single weekend in secrecy worthy of the atomic bomb project during World War II. While ultimately unsuccessful, the Nixon program showed what a forceful president can do to completely change the nation’s course if he is willing to push the limit of his power. . . .
Perhaps the main long-term impact of Nixon’s 1971 policy was to discourage future presidents from acting aggressively and unilaterally on domestic issues. That may be one reason why Barack Obama resisted using the 14th Amendment to counter Republican extortion on the debt limit, as I believe he should have, and seems incapable of coming up with anything remotely bold to deal with the continuing economic crisis.
But okay, even if Obama technically has the power, what specific actions could he take? Brad Delong and Mike Konczal have an rundown of what could have been adopted (and, of course, many of them still can be).
I have to admit this kind of technical, wonky policy stuff tends to make eyes glaze over a bit. But it really is important. People really are suffering and, it's clear, there's a lot that could be done. I've done what I can to break it into small topics an hopefully make it a bit more digestible.
So, the conversation started with two posts (here and here) where Ezra Klein admits that Obama made some mistakes, but basically argues that even a flawless performance wouldn't have made that much difference to the economy.
Mike Konzcal provides a very detailed rebuttal, here and here.
The Problem: Balance-Sheet Recession
First, Konzcal agrees with Ezra Klein's diagnosis of the problem. We're in a "balance-sheet recession." (Richard Koo explains "balance-sheet recessions" - a term he coined - in this remarkably clear, easy to understand, 10-minute video):
Ezra brings up the idea of a balance-sheet recession in a different post. It’s the Housing Debt Stupid:
If you take the Rogoff/Reinhart thesis seriously — and people should, and increasingly are – what distinguishes crises like this one from typical recessions is household debt. When the financial markets collapsed, household debt was nearly 100 percent of GDP. It’s now down to 90 percent. In 1982, which was the last time we had a big recession, the household-debt-to-GDP ratio was about 45 percent.
The Solutions
As Konzcal notes, understanding the problem in these terms is critical for crafting a solution that will actually work. Once you understand the problem is an overhang in household debt, there are three basic options (fiscal stimulus, debt restructuring or inflation):
The utility of calling this downturn a “household-debt crisis” is it tells you where to put your focus: you either need to make consumers better able to pay their debts, which you can do through conventional stimulus policy like tax cuts and jobs programs, or you need to make their debts smaller so they’re better able to pay them, which you can do by forgiving some of their debt through policies like cramdown or eroding the value of their debt by increasing inflation.
Cramdown
As for cramdown (i.e. debt restructuring) - one of the three options - "many people told Obama at the time to get cramdown as part of the second round of TARP":
[L]et’s talk about the modification of mortgages in bankruptcy, cramdown. This isn’t Monday morning quarterbacking; many people told Obama at the time to get cramdown as part of the second round of TARP, when the banks were vulnerable. Obama decided against it, and his team showed no interest in followup. This is after Obama campaigned on bankruptcy reform.
So okay, Obama was advised early-on to pursue debt restructuring, but, for reasons unknown, decided against it.
HAMP: Policy Disaster
Konczal next turns to HAMP - the adminstration's plan for homeowners. According to Konczal, HAMP is actually making the debt problem worse:
Meanwhile what has the administration done? We looked at HAMP and its consequences are making the debt problem worse: mortgage debt actually increases in modification, re-defaults are high, total debt loads remain high, consumers aren’t put into a place where the debt load is sustainable.
This was known in advance. . . . Alan White looked at private modification workouts . . . and found “Most voluntary modifications result in increasing debt . . . . More than half of modification agreements still increase monthly payments rather than reducing them.” This is the exact opposite of what we want to be doing for this crisis.
Getting debt-to-income lower isn’t just a manner of numerics; it’s a matter of getting housing debt into a position where it is manageable for households. That’s what isn’t happening, and the situation doesn’t look any better for the two years of dithering. But to confront how losses happen after a Wall-Street led bubble requires confronting power – wealthy owners of bad debts do not give up their claims easily.
So basically, it was a terrible program for homewoners, but to get a good program you'd need to get "wealthy owner of bad debts [to] . . . give up their claims . . . ." Of course, these are the same banks taxpayers bailed out.
Mike Konczal's List
In addition to cramdown and HAMP, discussed above, Konczal offers the following (on some of these the ship has sailed, but some are still possible):
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.
Brad Delong's List
Here's Brad Delong's list, countering Ezra Klein's assertion that nothing more could have been done:
1. Use Reconciliation to get a second stimulus through Congress in the fall of 2009.
2. Expand the PPIP to do $3 trillion of quantitative easing through the Treasury Department.
3. Have a real HAMP to refinance mortgages.
4. Use Fannie and Freddie to (temporarily) nationalize mortgage finance, refinance mortgages, and rebalance the housing market.
5. Announce that a weaker dollar is in America's interest.
6. Nominate a Fed Chair who takes the Fed's dual mandate seriously and pursues policies to stabilize the growth of nominal GDP.
7. Appoint Fed governors who take the Fed's dual mandate seriously and support policies to stabilize the growth of nominal GDP.
8. Take equity in the banks in January-March of 2009 and keep them from lobbying against financial reform.
9. Use Reconciliation to pass an infrastructure bank.
10. Use TARP money as a mezzanine tranche to fund large-scale additional aid to states and localities to reduce their fiscal contractions.
And Brad Delong's conclusion:
I think Ezra is simply wrong. There were a large number of things that Obama could have done--there are even things he could do now, if he wanted to.
I can't really add much to that.