I read Dailykos (to some degree) almost every day, and like many others, I get tired of the whining about the Obama "betrayal du jour". But this short diary will be discussing something that happened long ago.
Yes it is true that the products of the Congress are kind of ugly (Healthcare, Financial Reform), but that's really the fault of Congressional rules and the poor decision of the founding fathers which permits (e.g.) Wyoming to get the same number of Senators as California with 68 times the population. BTW, it is this mistake that causes right-wing pundits to say that this is a center-right nation.
I forgive Obama for everything but this one error. The one mistake that is unforgivable is the mishandling of the housing crisis. More below...
Everyone knew that the average price of a house would have to come down after the crash. The "Affordability Index" which measures the ratio of the actual monthly cost of the mortgage to take-home income, was way out of whack at the end of the housing boom.
Even now (as I understand it) the Affordability Index is still too high (particularly because wages are depressed at the moment). Believe it or not--- housing prices could dip a little further.
In light of these well known facts, Obama's efforts to get mortgages adjusted were/are particularly horrible. I know that Obama is a cautious guy, but sometimes the cautious choice turns out to be terribly incautious.
The plan itself was poorly designed, because it didn't give significant carrots and sticks to the banks. After all we the public have done to stabilize the banking system, the least we could expect from Obama is a robust program which included the kind of fear that gets bankers to do the right thing. The result was a mess. Only a few people qualified, and many (most?) of them ended up losing their homes anyway.
And BTW I am not impressed by the "moral hazard" argument -- the idea that some of the homeowners deserve to lose their homes because they bought homes they KNEW they could never afford. While it is undoubtedly true that a lot of people did this, I think moral hazard went out the window when we bailed out the banking system, GM, Chrysler, etc. How about some moral hazard for the little people?
The political consequences have been remarkably, amazingly bad. When people griped about fatcats getting well after failing, Obama had no logical response. If he had a robust mortgage program, he could have pointed to it --- and been inoculated from the charge of not caring about the little guy.
The question of what he could have legally done is one I am less certain about. Conceptually, the principal of every mortgage holder should have been reduced --- preferably by fixed dollar amount --- say $20,000, so that a 100k mortgage would have gone down by 20%, but a 200k mortgage only 10%. Joseph Stiglitz certainly recommended something like this in his book "Freefall". Also, on 18 February 2009, economists Nouriel Roubini and Mark Zandi recommended an "across the board" (systemic) reduction of mortgage principal balances by as much as 20-30%. Perhaps we could have offered tax breaks to the banks to offset the "losses" (of course, these are mythical losses since the value of these homes had collapsed anyway). And everyone should have been allowed to refinance at the going rate! Yes, everyone. The government and the banks should have shared the costs. If this had happened, the homeowning public would have had a great deal more disposable income that they do now -- easing the recession, as a bonus.
BTW, none of these plans would have prevented a large number of foreclosures. I think if people have no income due to layoff, we do them no favor by pretending that everything is okay. Everything is not okay. I think we should have delayed foreclosures by a year (perhaps), but if people have no means of paying the mortgage, there is a limit to what we can or should do.
So why am I talking about this now? Imagine how this mid-term election would have been different if these sorts of mortgage reduction program had been in place. It would have changed EVERYTHING. People are so emotionally involved with the cost & value of their homes that this single issue alone would have saved maybe a dozen seats in the House --- and possibly control of the House.
And that, dear readers, is why the one thing I can't forgive is Obama's mishandling of the housing crisis...No guts, no glory. To me, this mistake is as damning in its own way as anything Bill Clinton did wrong (worse than the Hillary-care debacle). This was/is a gigantic f*up.
Does "unforgivable" mean I won't vote Democratic this year or in 2012? Nope -- I'll be voting straight Democratic this election; just like every election since 1972. But I'll never view Obama the same way. As smart as he is, he should have been able to do more in (what turned out to be, IMO) THE crucial issue for the Democratic party.