Sonoma Mission Inn and Spa
Welcome to the Recovery!!

Spa Talks with Former Not-So-Senior Administration Officials...

Four points emerged:

  1. Doing something large-scale and effective about housing in 2009 would have been really, really hard because most underwater homeowners were making their payments, would have regarded it as grossly unfair for the government to have bailed out their peers in default, and banks had no interest in taking any haircuts at all on mortgage loans that were current--no matter how far underwater the borrower was.

  2. The failure of the PPIP and other policies in 2009 to achieve significant scale and actually boost the economy-wide supply of safe assets that the market was so desperate for is actually the fault of Krugman, Sachs, and Stiglitz for opposing it.

  3. The transformation of Bernanke from monetary activist before his reappointment to passivist after remains a huge mystery.

  4. Everything would have been OK--not great, but OK--if not for the Mediterranean Europe situation.

I buy (1)--but buying up every mortgage in the country at face value and refinancing them seems to me to be what FANNIE and FREDDIE were made for. (3) is to me as great a mystery to me as to my poolside companions. I am very skeptical of (2)--Jeff, Joe, and Paul seem to have had no influence on anything else, so why should they have been decisive here?

I do wish to take issue with (4): "My plan was perfect! If not for you meddling kids!!" has always seemed to me to be the cry of people who really do not understand what is going on. That financial crises spill over into sovereign debt crises which then reflect back into deeper financial crises is not a surprise. And hope that nothing further will go wrong is not a plan...