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Sheila Bair Changes Media Narrative on Housing Policy

It turns out that a whole bunch of observers can scream their collective heads off about Obama Administration housing policy for three-plus years, to almost no avail, but it takes one person with foreknowledge in the room to get the herd to nod their heads sagely. I took a look at Sheila Bair’s new book yesterday, and judging from the early reviews, the traditional media is finally ready to pronounce the Administration a failure on housing.

The Obama and Bush admin­istrations largely ignored the needs of beleaguered homeowners while focusing too narrowly on the well-being of Wall Street during the worst financial crisis since the Great Depression, according to a new book by a top participant in the government’s response.

The book, “Bull by the Horns,” by former Federal Deposit Insurance Corp. chairman Sheila Bair, says both administrations’ top advisers paid little more than lip service to helping borrowers at risk of foreclosure, instituting programs they knew were likely to fail and ignoring her recommendations about how to improve them.

By contrast, she said, senior advisers were willing to go to great lengths to rescue the nation’s top banks — without demanding accountability from top financial executives.

The book really sounds like a great read if your name is not Tim Geithner. But it has crystallized what those of us who have looked closely at the matter already knew: the Administration was never concerned with helping struggling homeowners, and they allowed an historic cascade of millions of preventable foreclosures, which had a direct effect on the sluggish economy. That’s because, as Bair says directly, “The policies were all focused on making banks profitable again.”

I haven’t read Bair’s book, and some of the ideas give me pause – she bestows undeserved praise all over Jamie Dimon, for example, and while maybe he had more know-how than his counterparts at the other big banks, his “special knowledge” for avoiding the financial crisis had more to do with being locked out of the subprime market for reasons beyond his control. But on housing, Bair is merely amplifying a critique with a long paper trail. It’s just that when Sheila Bair, former head of the FDIC says it, more people listen.

When the backlash on Bair comes – and it’s coming – you’re going to hear two main critiques (and a third one, whispered, based on how “that woman” Bair doesn’t know anything). First, you’ll hear that “housing is hard.” This is a proxy for “allocating losses to banks is hard,” and it’s not hard in a technical sense, only in a political economy sense. So the matter is completely bound up with not wanting to touch bank profits, which is Bair’s entire argument. The second thing you’ll hear is that this is all ancient history, and housing is back, baby, and all’s well that ends well. Tell it to the four million families sent out on the street, based on faulty documents, when there were means available to save them.

The housing bubble pop, following the same trajectory as the bubble and crash in the Great Depression, was a catastrophic situation. But not only did government do nothing but encourage the bubble in the run-up, it did next to nothing to mitigate it on the way down. And this is why we’re still sitting on 8% unemployment. At least Bair is blowing the whistle on the whole thing.

Yves Smith and Joe Weisenthal have more.

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David Dayen

David Dayen

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