It appears that the housing crisis will play a major role in defining the Obama administration; unfortunately, it is not entirely clear that the President is up to the challenge. There appears to be no end in sight for increasing home foreclosures. Construction of new homes declined by more than 10 percent in March, as foreclosures increased by nearly 25 percent for the first three months of 2009. In total, over 800,000 homes were foreclosed from January through March, while over 175,000 homes were lost in March alone. The economy continued to contract by an estimated annual rate of over six percent in the last three months of 2008, and by an estimated 1.5 percent in 2009.
In light of this economic deterioration, the Obama administration and Congressional Democrats unveiled their grand scheme for stabilizing the housing market. The “Helping Families Save Their Homes in Bankruptcy Act of 2009,” if passed, would legally authorize bankruptcy judges to alter the terms of home loans and debts to prevent the continued growth of foreclosures. The bill would require banks to negotiate with those in danger of foreclosure in favor of establishing more affordable mortgage payments. While the bill is surely preferable to the Democrats doing nothing, it represents a half-measure at best, in terms of stabilizing the housing crisis. The Democratic majority in Congress could merely legislate a moratorium on homes foreclosures, and require the renegotiation of loans for all those in danger of foreclosure. This would place responsibility for the housing stabilizing directly into the hands of Congress and the Executive, rather than abdicating the job to judges, who may or may not systematically or effectively intervene to prevent mass foreclosures in the future.
Whatever the Democrats’ justification for refusing to take direct action on the housing crisis, the public is likely to punish the party come the 2010 mid-term election for their failure to act decisively. There is substantial historical evidence to suggest that this will be the case. Empirical studies of voting have long established that the two best predictors of the public’s voting in midterm elections include: 1. The job approval rating of the President, and 2. The state of the economy, as reflected in fluctuations in personal income, the unemployment rate, personal assessments of the economy’s health, and evaluations of government’s performance in solving economic problems. In other words, when the economy is in dire straits and the President is faulted for failing to act (as reflected in a low approval rating), his party receives the blunt of the punishment in midterm elections.
Short of a drastic and ultimately successful Democratic turnaround of the economy, the Democrats will likely lose seats in Congress in 2010. While Obama has been in office only three months, his approval has already slowly began to dip (from a high of 68% in late January, to 63% by late April). Personal income and economic security are also likely to continue their decline, if the recent economic downturn is not soon reversed. A significant Democratic intervention on behalf of the American public, however, may be successful in preserving a Democratic majority in Congress following the 2010 election. Such an intervention, however, would need to make stabilizing the living conditions of those suffering as a result of the housing crisis and from growing unemployment and poverty a top priority. Presently, it looks like these issues are not a major concern for the Democrats. Unfortunately, the Democratic Party increasingly represents business interests over those of the mass public. The party does grant minor concessions to the masses, in the form of ever fewer minimum wage increases, modest extensions of the statue of limitations for those bringing lawsuits for sexual discrimination, and minor tax cuts for most Americans, among other actions. However, like the Republicans, the Democratic Party has indicated that stabilizing investor privilege stands above concerns for working Americans. Ninety-six percent of House Democrats and 80 percent of Senate Democrats supported the bi-partisan “stimulus” bill passed in late 2008, which allocated $700 billion to the financial industry in order to “restore liquidity” in the lending market. Sadly, the banks took much of this money and used it to pay for their own bonuses and to buy up their competition, rather than increase lending and pull the country out of recession. Similarly, President Obama supports federal funding for the creation of a new “bad bank” to subsidize the purchase of upwards of $1 trillion dollars in “toxic assets,” and allow banks to write off the bad investments in the area of mortgage securities. These actions – amidst Congressional inaction on the housing problem – clearly demonstrate the primacy of business interests over those of
In promoting the big business agenda, a number of “moderate” Congressional Democrats refuse to even consider the modest Obama-foreclosure act. Many Democrats are no doubt heavily influenced by financial industry lobbyists who vehemently oppose the Obama foreclosure plan. These lobbyists claim that “judicial modifications” of mortgages will increase interest rates for new housing loans and further hurt the unstable credit market. Why Democrats should seriously kowtow to bankers threatening to further curtail loans at a time when the Wall Street has lost nearly all its credibility with the American people is unclear. One thing is clear, however. The Democrats refuse to sever their close ties with the Wall Street elites who got us into this crisis in the first place. The ties between Obama and the financial community are deep indeed. Obama’s National Economic Council Director Larry Summers, serving as President of Harvard until 2006, presided over the firing of university endowment manager Iris Mack, after she blew the whistle on the school, warning about dangerous derivative investments with which Harvard was involved (unregulated derivatives are now understood to have played a major role in the 2008-2009 economic collapse). Obama Economic Advisor Robert Rubin served as the Chairman of the troubled Citigroup Corporation (which was intimately involved in the derivatives fiasco and the sub-prime mortgage crisis). As a Rubin’s and Summers’ protégé, Treasury Secretary Timothy Geithner helped spearhead the International Monetary Fund’s disastrous efforts to promote global economic deregulation, and Obama’s Chief of Staff, Rahm Emanuel, served as on the Board of Directors for the failed Freddie Mac mortgage corporation (which also played an instrumental in the mortgage crisis).
It is probably unfair to attack Obama for “selling out” the progressive community. He never gave any indication that he was planning on promoting a progressive agenda. Obama’s flaws aside, those on the left have a responsibility either to pressure recalcitrant Democrats, or push for a viable third party, to promote the rights of common men and women. A continuation of the status quo will only lead to the death of any short-term possibility for progressive reform.
Anthony DiMaggio teaches American Government and Global Politics at