Washington should have rescued homeowners not banks

SAVE THE BANKS RUIN THE ECONOMY
geithner“The fact that Secretary Geithner and the Obama administration did not push for debt write-downs more aggressively remains the biggest policy mistake of the Great Recession.” states  Economists Atif Mian and Amir Sufi in an editorial for the WashingtonPost headlined “Why Tim Geithner is wrong on homeowner debt relief.” Using data and arguments from their upcoming book, House of Debt, Mian and Sufi essentially argue that former Treasury Secretary Timothy Geithner’s recent public statements got the bailout exactly backwards. Geithner has argued that rescuing homeowners who were left underwater after the 2008 financial crisis wasn’t worth the effort, and that rescuing the banking system was our most urgent priority.

Whatever reasons Washington had for opposing assistance to underwater homeowners, a careful evaluation of the policy effects was not among them. The evidence is pretty clear: an aggressive bold attack on household debt would have significantly reduced the horrible impact of the Great Recession on Americans.

2 thoughts on “Washington should have rescued homeowners not banks

  1. Multiple government policies pursued over the past five years sound benign, but are aimed at helping large financial institutions, rather than home owners.

    The Federal Reserve`s policy of holding interest rates near zero for more than a decade now, sounds like it helps homeowners, but it fact, it permits the banks to hold the properties as assets on their books, which if listed as their actual market value would leave the banks with negative net worth balances.

    In addition, it has devastated savers as well as both private and public pension funds, precipitating a crisis just as the baby-boom generation prepares to retire.

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