Consumer Law

The Economic Team and the Foreclosure Crisis

By Alan White

By Alan White  

So far President-Elect Obama's economic team, while perhaps full of bright people, reflects very little diversity in viewpoint, coming mostly from the mainstream, centrist, a-little-Keynsianism-is-OK-but-not-too-much school of thought.  Notably missing are any economists one might regard as leftist, or even genuinely liberal in the American sense.  None of the announced advisers to date concern themselves primarily, or even very much at all, with issues of poverty, labor, housing, or the unequal distribution of wealth and income.  None could be characterized as a fan of regulation of markets, as a matter of principle.  

A brief search for their writings on the the foreclosure crisis produces very little.

Larry Summers wrote a a reasonable column for Financial Times earlier this year, in which he advocated bankruptcy reform to allow homeowners to reduce mortgage debt to property values, and to swap debt for equity.  Austan Goolsby, on the other hand, wrote a wretched piece in March 2007 warning against regulation of subprime mortgages, based on the erroneous factual assumption that subprime mortgages expanded homeownership for minorities (who are in fact losing billions in home wealth as a result of subprime foreclosures, which are approaching 50% of subprime loans.)  Thankfully the Federal Reserve and other regulators have not heeded this advice.  If anyone knows of anything Christina Romer, Paul Volcker, or Tim Geithner have written on the subject, let me know.

While some of these economists may be pragmatists, their deeply held biases favor the unregulated market that has brought the present catastrophe.  Thus far, I don't hold much hope for a transformative administration, on the foreclosure crisis front, or for that matter on the new regulatory architecture for financial services generally.   

Full post as published by CL&P Blog on December 01, 2008 (boomark / email).