Obama’s flawed plan for bank reform (Robert Kuttner)

Weak Medicine: Obama’s Flawed Plan for Reforming the Banks
By Robert Kuttner, Chelsea Green Publishing
Posted on April 18, 2010, Printed on April 19, 2010

Editor’s note: The following is an excerpt from A Presidency in Peril: The Inside Story of Obama’s Promise, Wall Street’s Power, and the Struggle to Control our Economic Future by Robert Kuttner.

When Barack Obama entered office, the housing crisis required very strong remedies. Government needed to use a mix of public funds and concessions on the part of the bankers and investors, who held the mortgage paper, to reduce the principal and interest to a monthly payment low enough to allow distressed borrowers to keep their homes. Otherwise, the foreclosure crisis would keep feeding on itself, glutting the market with vacant homes, driving housing values still lower, and trigger¬ing still more foreclosures. But this course would require banks and hold¬ers of mortgage-backed securities to take losses, and it was rejected by both the Bush and Obama administrations. Instead, both Bush and Obama relied on a series of voluntary programs, jawboning bankers to reduce monthly payments. Not surprisingly, this approach failed.

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