Paul Krugman has a useful and succinct description of the unfolding mortgage crisis. It’s worth a read just to get a grasp on what’s behind the problem. Yet, he has no real solution. This is why I am impatient with his snideness:
True to form, the Obama administration’s response has been to oppose any action that might upset the banks, like a temporary moratorium on foreclosures while some of the issues are resolved. Instead, it is asking the banks, very nicely, to behave better and clean up their act. I mean, that’s worked so well in the past, right?
He takes a shot at the administration for opposing a blanket moratorium, but he does so without even considering their motivation except to say that they don’t want to “upset the banks.” This is a repeat of Krugman’s behavior at the height of the financial crisis when he called incessantly for nationalizing the banks without the slightest regard for the legal and financial risks and barriers to doing so.
It’s an attitude echoed by digby. While I agree with her completely about the necessity of accountability and jailtime from the fraudsters, she’s way too casual in saying this:
There is not going to be any easy way out of this. The invisible hand may be working but it often works on a very, very long timeline and many bad things can happen to a society while it does its thing. Meanwhile, every incantation and folk medicine they’ve applied to this problem has resulted in another round of infection. It’s time to open up the wound and completely clean it out. The patient will heal much faster and it’s far less likely to die in the meantime.
I don’t mean to be insulting, but I don’t think digby has the information she needs to make an informed opinion about what will or won’t kill the patient. There is an enormously compelling sentiment in this country (not only on the left) to punish the banksters. But there’s not much consideration of the exquisite difficulty of doing so without punishing all of us. We lost seven million jobs in the blink of an eye when the banks were exposed as insolvent. We could have clawed back some executive pay and thrown some people in jail, and the vast majority of the pain would still have fallen on ordinary folks. We could have let the banks fail, and we probably would have lost another seven million jobs that may take decades to replace.
There’s no political will to do TARP II, so how eager should we be to prove the banks’ insolvency?
To be clear about what is at the root of my complaint, it’s easy to call for creative destruction from the sidelines but the people who have to actually make these decisions have a very weighty responsibility. As a matter of justice and political survival, they should absolutely start putting some people in prison. But as for how they should clean up this mess so that it both fixes the problem and doesn’t cause another wave of mass unemployment? Well, hell if I know. But I’m pretty confident that they aren’t operating on the premise that they can’t upset the banks. They’re operating on the assumption that we need a financial services industry to keep credit flowing and, therefore, keep the economy growing. Lazy snark about ‘extend and pretend’ might feel good, but the gravity of the problem is large and the potential consequences so grave, that calls to lance the wound and take the pain all at once are far too smug.
In the big picture, the moratorium is small potatoes. The real issue is how the document trail issue is resolved. If it is resolved in a way that forces the banks to eat their shitpile in one sudden burst, and there is no will to bail them out again, then we’re back September 2008. But, this time, the ship goes down to the bottom of the sea. So, I guess what I am saying is, be careful what you wish for and don’t be so quick to judge the people who are responsible for keeping us out of a true Depression.
