Edward DeMarco, acting director of the FHFA (Federal Housing and Finance Agency) and a Bush-era holdover, has refused a request from the Obama administration to implement a program of debt relief for underwater mortgages.
FHFA is the controlling agency for Fannie Mae and Freddie Mac, "the government-sponsored lenders that were effectively nationalized in the waning days of the George W. Bush administration."
In other words, a Bush-appointee (and "civil servant" or non-political jobholder) is refusing to implement administration economic policy that offers debt forgiveness (a form of bailout) to someone other than banks.
As Krugman says elsewhere, "Fire Ed DeMarco. Do it now."
There are many angles to this story. Let's unpackage them, starting with why debt matters in the current crisis.
■ Personal debt (economists call it "debt overhang") is one of the main reasons our economy is not recovering. As I noted here:
[W]hen all the women who wanted jobs had gotten them ... our "prosperity" became debt-driven. That period lasted until, oh, yesterday (ok, 2008). By my count, that's 20-plus years of debt intake. Clearing that debt is a job that has to be done. Starting now is a very good thing.Also this, from the same piece:
How long will it take to clear 20 years of debt? If it "only" takes ten years, we'll have gotten off lightly — and it will feel like forever.
We won't have a real recovery until that debt is either paid off or destroyed (via bankruptcy, forgiveness, or some other form of debt-clearing). ...In other words, no recovery without debt reduction in some form. And the slow way — making every banker whole in a depressed jobless economy — can be slow the point of "never gonna happen." Personal debt must be cleared by some faster means.
Think of household debt as a hole that has to be filled (with money) before big-screen spending can resume. The ratio of "debt relative to income" is a key metric in recovery of the consumer economy. The point at which debt-burdened people "feel" unburdened enough to start spending — that's when their personal economy recovers.
■ The barriers to clearing personal debt are many. They include:
- Republican desire to kill the economy in order to recapture the White House.
- The desire of both Democratic and Republican elites (office holders and power brokers) to make sure their paymasters (sorry, our bankers) don't lose a dime.
- The desire of the rubes (sorry, media-led American voters) to make sure no "undeserving" person gets one federal cent that a rube might otherwise pocket for himself.
About the second, Krugman notes this about the Obama administration's debt-relief policy:
Unfortunately, the administration’s initial debt relief efforts were ineffectual: Officials imposed so many restrictions to avoid giving relief to “undeserving” debtors that the program went nowhere.About the third, as soon as Lyndon Johnson–created welfare programs benefited dark people, white America rebelled. From Nixon's "southern strategy" to Reagan's "welfare queens" to Clinton's "welfare reform" — the War on Poverty quickly became a war on the poor. To thunderous bipartisan applause.
■ The Obama administration has apparently seen the light, or at least some of it. Krugman again:
More recently ... the administration has gotten a lot more serious about the [personal debt] issue. And the obvious place to provide debt relief is on mortgages owned by Fannie Mae and Freddie Mac ...That administration support involves Tim Geithner and the Treasury Department. Krugman from a different source:
The idea of using Fannie and Freddie has bipartisan support. Indeed, Columbia’s Glenn Hubbard, a top Romney adviser, has called on Fannie and Freddie to let homeowners with little or no equity refinance their mortgages, which could sharply cut their interest payments and provide a major boost to the economy.
The Obama administration supports this idea and has also proposed a special program of relief for deeply troubled borrowers.
Treasury Department [has requested that FHFA] offer debt relief to troubled homeowners ... backed by an offer by Treasury to pay up to 63 cents to the FHFA for every dollar of debt forgiven.But DeMarco, acting head of FHFA, has refused the offer. And that's where things stand. For Krugman, this is unacceptable.
[T]here is simply no way that it makes sense for an agency director to use his position to block implementation of the president’s economic policy, not because it would hurt his agency’s operations, but simply because he disagrees with that policy.■ Who is Ed DeMarco and why is he acting this way?
He’s a civil servant who became acting director of the housing finance agency after the Bush-appointed director resigned in 2009. He is still there, in the fourth year of the Obama administration, because Senate Republicans have blocked attempts to install a permanent director. And he evidently just hates the idea of providing debt relief.He's a Bush holdover (a kind of embed) who ended up acting director because of Mitch McConnell's obstructionism. If he can't be fired, he can certainly be replaced at the start of Obama's second term via a recess appointment, something Krugman strongly advocates.
As to why this refusal to act, Krugman and I differ. He puts all the blame on the aforementioned Senate Republicans, with some justification.
I put the blame on Obama, for not clearing out the embeds years ago — apparently not even wanting to.
And now that he has finally decided to offer a dollop of non-banker bailout (albeit timed for election season), his four-year indulgence of Ed DeMarco has bit him hard.
■ Will DeMarco get away with it? I'm going to guess Yes, though I could be wrong. Even though he's likely doing R-party bidding (Krugman is right about that), his defense will appeal to point three above — rube-hate of the "undeserving" — a position that Mr. Obama, I strongly suspect, fully shares.
How will we know if I'm right? See if DeMarco gets fired (that may or may not be possible). Then, after the election, see if he gets recess-appointed out. I think the odds may be in my favor.
UDPATE: David Dayen agrees that DeMarco won't be fired. Scroll down for the reason.
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