Wednesday, August 27, 2008

Some Plan

by Tanta on 8/27/2008 08:29:00 AM

Dean Baker is highly annoyed by this line from Sheila Bair, as paraphrased by the New York Times:

The swelling tide of toxic home loans is proving to be even more worrisome than initially feared, Ms. Bair said.
I think I've become more or less impervious to the hoocoodanode line, given too much exposure to it. I'm actually rather more blown away by the following quote:
She is struggling to clean up the mess and forestall home foreclosures with a plan to ease loan terms for hard-pressed homeowners.

“It is going to be slog to work though this, but there is no easy way to do it,” Ms. Bair said about her plan during an interview in her office here. “We haven’t seen the trough of the credit cycle yet.”
People ask me all the time something like this: "So, well, you think you're so smart, what's your solution for this problem?" And I tell people all the time, "There is no 'solution' to this problem. That's why it sucks so bad. That's why you don't let problems like this develop in the first place."

I might even be willing to grant Bair an occasional indulgence in hoocoodanode if she'd just quit trying to pretend that she--or anyone else--can "work through this" in any meaningful way, "this" being the deflation of the housing bubble. I mean, one does what one can. I don't object to anyone making lemonade where the opportunity presents itself, nor do I fault anyone for taking whatever limited measures are possible to ease the pain for individual homeowners. But anyone who continues to pretend that "preventing foreclosure" is a "solution" to the problem here is lying to the public. Trying to "prevent" the results of a home-mortgage credit bubble isn't "solving" anything, it's keeping your finger in the dike and waiting for a miracle.

Besides the fact that Sheila Bair is still, as far as I know, the head of the FDIC, not the National Homeowners Association. Her concern for homeowners is nice and everything, but she's supposed to be regulating banks and thrifts. The FDIC needs to be worrying about "foreclosing" on some troubled banks, not pretending that troubled banks can avoid the consequences of a bubble by refusing to let mortgage loans fail.