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Ed Luce: "What a Pity Obama Is Reluctant to Enforce His Own Arguments"

Ed Luce on housing policy:

Housing policy is holding back America’s recovery: [H]ouse prices are anchored by the 11m or so Americans whose homes remain “underwater” (ie houses that are worth less than their mortgages). Until this huge backlog of potential foreclosures is cleared, which could take four more years at the current rate, America is unlikely to see a robust housing recovery. This means the economy would be unlikely to exceed its trend growth rate…. That in turn means joblessness would be unlikely to fall much further….

This is where Mr DeMarco comes in… has resisted White House blandishments to allow large writedowns of the principal mortgages of delinquent borrowers… blocking efforts to provide more help for distressed homeowners since Mr Obama took office. He has played the immovable object; Mr Obama, the resistible force….

The situation has long demanded a bazooka. Mr Obama is offering only a rifle, which Mr DeMarco remains reluctant to use. And it took three years for the president even to do that. He has lacked the conviction to risk a political fight…. Indeed, he could not bring himself to sack Mr DeMarco and appoint a more amenable acting head – well within his powers…. Yet Mr Obama has strong arguments at his disposal. The belief that we should let the market reach its natural bottom comes from the scribblings of the same dead economists who influenced Andrew Mellon, Herbert Hoover’s Treasury secretary – the man whose mania for liquidation plunged the US into depression….

There are two even better arguments, both of which make usable sound bites – in fact Mr Obama often uses them. The first is that irresponsible borrowers – the subprime offenders – have long since defaulted. Most of the homeowners now underwater have been hit by the wave of foreclosures around them and are being punished for bad luck. Most are not behind on their mortgages. You could say they are suffocating responsibly.

The second is even more basic. Every American is damaged by the bad housing market because it holds down the rate of economic recovery. Reviving it has nothing to do with morality. It is about raw, capitalist self-interest. It is therefore also about protecting the taxpayer. What a pity Mr Obama is still reluctant to enforce his own arguments.