What could Obama have done, Part III
A few days ago, I wrote a post asking what the White House could have done differently to lead to dramatically different economic outcomes today. My take was somewhat pessimistic. Congress could have done a lot, and the Federal Reserve could have done a lot, but I’m not certain that different decisions from the White House could have dramatically changed today’s unemployment rate. Others disagree. Brad DeLong, for instance:
1. Use Reconciliation to get a second stimulus through Congress in the fall of 2009.
2. Expand the PPIP to do $3 trillion of quantitative easing through the Treasury Department.
3. Have a real HAMP to refinance mortgages.
4. Use Fannie and Freddie to (temporarily) nationalize mortgage finance, refinance mortgages, and rebalance the housing market.
5. Announce that a weaker dollar is in America’s interest.
6. Nominate a Fed Chair who takes the Fed’s dual mandate seriously and pursues policies to stabilize the growth of nominal GDP.
7. Appoint Fed governors who take the Fed’s dual mandate seriously and support policies to stabilize the growth of nominal GDP.
8. Take equity in the banks in January-March of 2009 and keep them from lobbying against financial reform.
9. Use Reconciliation to pass an infrastructure bank.
10. Use TARP money as a mezzanine tranche to fund large-scale additional aid to states and localities to reduce their fiscal contractions.
Mike Konczal, too:
1. Use eminent domain to purchase MBS and then writedown the debts to manageable levels. Legal, a huge move, but with some precedent in the HOLC. This would have been Obama’s equivalent of Executive Order 6102. It would have been an extraordinary action but so is the Recession we are going through.
1.a Indeed TARP was Obama’s Executive Order 6102 – he could be funding an infrastructure bank with it right now if he was willing to push it but is choosing against that. It explicitly has the funding he wanted on mortgage relief that hasn’t been spent through HAMP. He could have done a ton with it. With the exception of the auto industry bankruptcies, TARP wasn’t used aggressively enough.
2. FYI when it comes to protecting the banks, Obama has been willing to go to great lengths to avoid Congress. Look at the Public-Private Investment Program for Legacy Assets (PPIP) program – often referred to as the early 2009 Geithner Plan. That plan involved using FDIC funds to try and get private money to overbid the toxic assets on the banks’ books. Though there was the nudge and the public put-option, private capital wouldn’t step up – it was a job the government needed to do. But it was tried and created in such a way to avoid Congress entirely.
As interfluidity said at the time (March 2009):
Is that it, then? You know, the “Public Private Investor Partnership” that the Treasury Secretary introduced on Monday. Are we doing that?
The plan involves the Treasury, FDIC, and Federal Reserve putting hundreds of billions, perhaps more than a trillion dollars, at risk. That should require some sort of Congressional approval, right?
Nope. It didn’t. Clearly this wasn’t the intention of the FDIC fund they were leveraging, but Treasury went with it anyway rather than go back to Congress for more TARP for the banks. And other things could’ve been done along the same lines that involved getting the homeowner market under control instead of shoveling put options and free cash to hedge funds that never showed up.
3. FHFA could writedown mortgages under safety and soundness criterion with homeowners taking a shared appreciation clause – writedown for a loss now, and then taxpayers get part of the upside later. As Adam Levitin suggested to me, that structure of shared appreciation would look a lot like the TARP warrants that were given to shadow banks during the crisis. A TARP for Main Street that isn’t a slogan but an actual policy tool here. New Bottom Line has additional suggestions and numbers along this approach.
4. FDR was pretty straightforward about what he wanted the price index and monetary policy to do under his administration and the actions they’d take to bring it about. Getting the Federal Reserve to go didn’t seem to be a concern for the administration one way or the other.
Commenter ISA8686 also had an interesting take on this:
I’m generally a defender of the President’s, but I can think of a few things that may have left us in a better situation today. For example:
- Housing: Here’s where I think the Administration has most obviously fallen flat. A more aggressive stance regarding mortgage modifications may have been a net plus. Yes, bailing out underwater homeowners would be unpopular, but so is a poor economy. Household debt and the housing sector are two areas really holding back a recovery. And this is the area where they have the most room for unilateral actions, given that the U.S. government owns Fannie and Freddie.
- Stimulus: I doubt the Recovery Act by itself could have been that much larger given political constraints, but perhaps it could have been structured somewhat more effectively with something like Dean Baker’s work-sharing proposal or the current FAST proposal included. Perhaps the Making Work Pay tax credits could have been passed separately, keeping the price tag of the Recovery Act itself smaller while still increasing the amount of stimulus.
- Infrastructure: Not passing a transportation reauthorization bill in the first two years was a big missed opportunity, and could have allowed for a large injection of funds that could make a big impact right about now.
- Second stimulus through reconciliation: Had health care reform been wrapped up earlier, and had Scott Brown’s victory been avoided, Democrats would have had an extra few months on the calendar. They could have used to pass a new budget resolution in early 2010 which allowed for a reconciliation-appropriate second stimulus bill (pairing short-term spending with some deficit reduction).
- The Fed: Obama could have made recess appointments to fill Fed vacancies and he could have named someone other than Bernanke - perhaps Janet Yellin or Christina Romer - to the chairmanship. Maybe it wouldn’t have made a difference, but it’s possible they’d be more dovish regarding inflation.
- Lastly, a couple items that aren’t directly related to the economy: he and the Congressional Democrats could have repealed the Bush tax cuts in 2009 or early 2010, saving themselves from the hostage situation they had last December and putting Obama on better political footing with his base. Likewise, they could have raised the debt ceiling at the same time, or at the very least raised it during the lame-duck as part of the tax cut negotiations.
None of these things would have been a magic cure. And none of us can prove a hypothetical. But these are some things that I think could realistically have been achieved which might have made things a little better.
I want to work through some of these ideas in greater detail before I comment at length. More soon.