Keep People in Their Homes

NDN Backgrounder: The Politics of Economic Recovery

As the U.S. Senate continues its consideration of the American Recovery and Reinvestment Act, NDN is pleased to offer much of our recent, narrative shaping work on the economy, recovery, and keeping the focus on everyday people. For last week's economic backgrounder, click here

  • Politics and the Economic Crisis by Dr. Robert Shapiro, 1/9/2009 - Shapiro argues that, for an economic recovery plan to be effective, we must also address the underlying causes of the "Great Recession," including the housing crisis.
  • Getting the Stimulus Right by Michael Moynihan, 1/6/2009 - Moynihan makes a number of suggestions for ensuring that the upcoming, record-size stimulus package is a success, including a board to oversee the vast expenditures.
  • A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.
  • Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.
  • Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.
  • Video: At the 2008 Democratic National Convention in Denver, Newark Mayor Cory Booker discusses his work reinventing a vision for government and innovation. This message of change is timely as America works through these tough economic times and begins to shape a 21st century economy and 21st century government.

NDN Backgrounder: Economic Recovery and Keeping People in Their Homes

Over the past two days, NDN has offered important, leading commentary on economic recovery and the need to keep people in their homes. Dr. Robert Shapiro, Chair of NDN's Globalization Initiative, wrote "Obama's Post-Partisan Plan Almost Where It Should Be."

While the chorus of complaints about President Barack Obama’s spending and tax package was dispiritingly predictable, the post-partisan surprise is that its basic structure is evolving to just about where it should be. The legislative process is adding its normal quotient of special interest subsidies on both the spending and tax sides -- think of it as a "congressional tax," because they really can’t help themselves. And compared to the last decade of limitless tolerance for the unregulated escapades of Wall Street financiers that’s now pushing many of the world’s economies over a cliff, the partisan outrage at this conventional if distasteful part of the legislative process seems pretty hollow.

The important matter here is that at its core, the package should do roughly what we want it to, given the gravity of current conditions and our equally serious, longer-term problems with wages and jobs. (There is one gaping exception: nothing serious yet to address the foreclosure and housing crisis). In effect, the Administration has cleverly packaged some broadly useful, longer-term economic and social initiatives with some traditional “stimulus,” and it’s selling it as the answer to the crisis. It provides some of that answer -- unfortunately, not all of it by a long shot -- but it also offers the Administration’s first responses to other legitimate matters on which President Obama happened to win his election.

Read the full piece here. 

On the need to keep people in their homes, an issue NDN has led on since the financial meltdown, NDN Fellow Michael Moynihan argued that "What America Needs is a Fixed 4% Mortgage."

In short, America needs three things to stimulate the economy: the recovery package that is now approaching passage; a plan to revitalize the banking sector, which the Treasury Department should release soon; and finally, a 4% fixed-rate mortgage to address the housing crisis. Fixing the housing problem was mysteriously absent from the Bush efforts to address the crisis. Now that Obama economic team is in place, the Administration and Congress should work rapidly to develop this critical third piece of the economic recovery.

Read the full piece here.

For more of NDN's leading work on keeping people in their homes, please see the following pieces and click here for the Keep People in Their Homes page:

  • Notes on the Financial Crisis by Michael Moynihan, 9/26/2008 - Moynihan examines the panic fueled by the Bush Administration's inadequate response to the financial meltdown.
  • Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective. 
  • Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.

Obama's Post-Partisan Plan Almost Where It Should Be

While the chorus of complaints about President Barack Obama’s spending and tax package was dispiritingly predictable, the post-partisan surprise is that its basic structure is evolving to just about where it should be. The legislative process is adding its normal quotient of special interest subsidies on both the spending and tax sides -- think of it as a “congressional tax,” because they really can’t help themselves. And compared to the last decade of limitless tolerance for the unregulated escapades of Wall Street financiers that’s now pushing many of the world’s economies over a cliff, the partisan outrage at this conventional if distasteful part of the legislative process seems pretty hollow.

The important matter here is that at its core, the package should do roughly what we want it to, given the gravity of current conditions and our equally serious, longer-term problems with wages and jobs. (There is one gaping exception: nothing serious yet to address the foreclosure and housing crisis). In effect, the Administration has cleverly packaged some broadly useful, longer-term economic and social initiatives with some traditional “stimulus,” and it’s selling it as the answer to the crisis. It provides some of that answer -- unfortunately, not all of it by a long shot -- but it also offers the Administration’s first responses to other legitimate matters on which President Obama happened to win his election.

First, there are at least $230 billion dollars in clear economic stimulus -- notably, some $65 billion for more food stamps and an extension of unemployment benefits and $30 billion in other assistance for low-income households, all of which will directly support consumption; and another $80 billion in large grants to states dealing with fast-falling revenues and balanced budget requirements, which will save jobs and so also support consumption. There also are about $50 billion out of a larger pot of infrastructure projects that can properly count as stimulus -- for schools, highways, transit, public hospitals, and so on – because they can get started fairly quickly and absorb idle resources (that’s mainly idle construction and machine workers, and equipment). Then there’s nearly $90 billion for state Medicaid programs. That’s not stimulus precisely, but it will relieve states from having to choose between cutting medical treatment for poor and elderly people or cutting other jobs and purchases to maintain those treatments. Given our circumstances, there are no sensible, post-partisan arguments against these provisions.

The second tranche of the package provides some $250 billion in tax cuts, most of it the first stage of the President’s promised tax relief for the now-famous “95 percent of Americans,” plus another year of relief from the Alternative Minimum Tax’s slide down the income scale. There’s no point calling this stimulus. The fix in the AMT is an annual ritual which would happen with or without the package. A small package of business tax cuts (maybe $20 billion) also will do little economic good or harm. And the same can be said of the personal tax cuts. The best guess of economists is that 75 to 80 percent of those tax cuts will be saved with no stimulus effect, since 60 percent of last spring’s rebates were saved and anxieties over falling incomes, job losses, or worse have all intensified since then. But they’re still worth doing as progressive, post-partisan down payments on using the tax code to respond to the sharp increases in inequality under our recent, unlamented conservative regime. It certainly would be better to adopt these kinds of changes as part of a broader reform of the tax code. But as tax changes go, they have the unusual virtue of actually helping most people.

Finally, there’s a third group of some $220 billion in new public investments -- in education, training, broadband, clean tech, environmental cleanups, modernizing the electricity grid, energy efficiency, health care IT and medical research, and, yes, more as well. The current Great Recession is brutal, and it’s getting worse; but one reason it’s so painful is that it followed an economic expansion in which, the income data tell us, most Americans barely held their own ground. These investments are close enough to a post-partisan agenda for raising the productivity of the overall economy as well as millions of workers, plus a small down-payment on addressing climate change. And the productivity pieces, at least, could begin to address the remarkable, recent stagnation in most people’s incomes. It will take much more than that to restore the strong wage and job gains we saw in the 1990s, notably serious cost containment in health care and a lot more energy efficiency than is in sight right now. But it’s a useful first step, and one for which NDN has long argued.

So it’s not just “stimulus,” but also the heart of the President’s first year agenda – and on balance, that’s a good thing. The missing piece remains what we have lamented for six months now (check NDN's Keep People in Their Homes page) – there’s still no new policy to stem the rising foreclosure rates driving the freeze in the capital markets, which in turn propelled the worst global downturn in 75 years. Without that, the stimulus and the new investments will have little lasting effect. So that remains the most important, unfinished business of the President's first 100 days.

What America Needs is a Fixed 4% Mortgage

New York City - Debt crises, as I have written before, are as old as civilization. And history has shown that when debt exceeds the ability to repay, there is only one solution: debt reduction. This can take the form of a general release as in the Biblical jubilee or laws of Solon in ancient Athens, a moratorium on repayment and reduction of interest as in the decrees of the Roman emperor Tiberius, forgiveness of principle as in Bono's initiative for the developing world, bankruptcy at the level of the individual firm, or if all else fails, inflation as in Germany after World War I. However, there is no getting around the fact that when people can't pay, the only real answer is debt reduction. It is time for Congress and the Administration to face up to that fact in the arena of mortgages as we work through the current financial crisis.

Mortgages remain a key part of the current crisis, as evidenced by the vastly different fate of banks that currently hold mortgage-backed securities such as Citi (whose stock is trading at 3.7) and banks that avoided them such as JP Morgan Chase (whose stock is trading at 25).  The biggest casualties of the crisis so far -- such as Bear Stearns, Lehman and AIG, not to mention Fannie and Freddie -- fell, in large part, due to their involvement with mortgage- backed securities. Mortgage-backed securities and the mortgages that underlie them remain at the eye of the financial hurricane.

However, at the level of the individual household, the mortgages that underlie them are also hampering recovery. Forced to choose between keeping their homes and spending, people will try to keep their homes as long as possible. Unsustainable mortgage payments, thus, are a direct challenge to any effort to jump start the economy. Absent real action by the government, these mortgage payments will continue to drive foreclosures, lower home prices and eviscerate household budgets for the foreseeable future. Fortunately, there is something government can do.

While principle amounts as well as interest rates are a problem, the latter can be altered simply by allowing Americans to refinance into affordable fixed rate mortgages. Of course, banks themselves are not about to lend money to mortgage buyers at 4% in the current environment. That is why the federal government needs to step in with an ambitious new federally guaranteed mortgage to solve the mortgage crisis once and for all. 

A new low-interest mortgage is the key ingredient needed to get American households spending again. In other words, it is no exaggeration to say that economic recovery is hostage to mortgage reform.

Someone who has been writing about the need for debt reduction for some time is British historian Niall Ferguson who returns to the subject today in the Financial Times.  He notes that in the 19th century, it was common for governments to replace 5% notes with 3% notes through a process called conversion. When markets are working properly, it is often possible for borrowers themselves to practice conversion by refinancing at a lower rate. However, in today's environment in which underwater mortgages continue to cripple household budgets but replacement mortgages are hard to come by, Ferguson makes the point that conversion of the whole class of adjustable rate mortgages with a new low-interest mortgage is needed to work through the current crisis.

Not everyone would take advantage of the U.S. mortgage, as I would call it, nor should they.  If someone's house has depreciated well below the level of the mortgage, that mortgage is no longer worth par. Provision might be made to permit banks to sell underwater mortgages at a hefty discount. However, a large share of high-interest mortgages that are currently problematic for lenders and crippling for borrowers could be converted into stable-performing mortgages through an orderly refinancing into a 4% fixed-rate mortgage. A universal waiving of pre-payment penalties would be a small price to pay to fix a gigantic problem with one stroke. The program is doable today at rates south of 5% because of historically low costs to the government of borrowing. 

The benefits going forward would be immense. Ferguson argues that "permanently lower monthly payments for a majority of US households would almost certainly do more to stimulate consumer confidence than all the provisions of the stimulus package, including the tax cuts."  In my view, they would complement other efforts. And think of the long-term benefits after the current crisis subsides! A stable, low-cost mortgage for American families would improve family budgets, living standards and the U.S. economy for many years.

In short, America needs three things to stimulate the economy: the recovery package that is now approaching passage; a plan to revitalize the banking sector, which the Treasury Department should release soon; and finally, a 4% fixed-rate mortgage to address the housing crisis. Fixing the housing problem was mysteriously absent from the Bush efforts to address the crisis. Now that Obama economic team is in place, the Administration and Congress should work rapidly to develop this critical third piece of the economic recovery.

NDN Economic Backgrounder: Stimulus, the Next Expansion, and Clean Infrastructure

With negotiations on President Obama's economic recovery and reinvestment plan underway, we present much of NDN's key work on the economy, creating a stimulus for the long run, keeping people in their homes, and clean infrastructure:

  • Politics and the Economic Crisis by Dr. Robert Shapiro, 1/9/2009 - Shapiro argues that, for an economic recovery plan to be effective, we must also address the underlying causes of the "Great Recession," including the housing crisis.
  • Getting the Stimulus Right by Michael Moynihan, 1/6/2009 - Moynihan makes a number of suggestions for ensuring that the upcoming, record-size stimulus package is a success, including a board to oversee the vast expenditures.
  • The Global Economic Crisis and Future Ambassadorial Appointments by Simon Rosenberg, 11/26/2008 - With the mammoth task of rebuilding international financial architecture and recovering from a global recession awaiting the new President, Rosenberg points out the the ambassadors to the G20 nations will be key members of the economic team.
  • A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.
  • Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.
  • Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.
  • Solar Energy: The Case for Action by Michael Moynihan, 8/1/2008 – This major paper on the dynamic solar industry argues that accelerating the deployment of solar energy must become a top economic policy priority of the United States.
  • Trading in the Trading Down Economy by Michael Moynihan, 7/11/2008 - As economic activity trended downward, Moynihan argued for an economic vision that both moved America beyond the recession and positioned the country for long term prosperity.
  • A Laptop in Every Backpack by Simon Rosenberg and Alec Ross, 5/1/2007 – Rosenberg and the One Economy Corporation’s Ross offer a modest proposal for putting a laptop in the backpack of every American sixth grader, as connectivity to and facility with the global communications network are essential for success in the 21st century.
  • Video: SEIU President Andy Stern speaks to NDN about the New Landscape of Globalization, 6/20/2007

For more of NDN's 21st century economic strategy for America, please visit our Globalization Initiative page.

NDN: Economic Recovery Package Signals New Priorities, Development of a 21st Century Economy

NDN today released this statement applauding the draft economic recovery and reinvestment package:

NDN: ECONOMIC RECOVERY PROPOSAL SIGNALS CHANGED PRIORITIES, ACCELERATES DEVELOPMENT OF A 21ST CENTURY ECONOMY

"President-elect Obama has made clear that this proposal should not only create more jobs, but do so in ways that will help drive the development of a real, 21st century workforce and genuine 21st century economic infrastructure," said Dr. Robert Shapiro, the Chair of NDN’s Globalization Initiative. "Investments in this 21st century economic infrastructure, such as increased broadband access, computers in schools, health information technology and provisions to green the federal government, are critical to increasing demand for the important technologies and skills that will in turn expand the nation’s capacity for innovation and economic growth."

NDN President Simon Rosenberg praised both the recovery package and President-elect Obama’s commitment to use TARP funds to help keep people in their homes.

"For years, NDN has argued that the central economic issue of our time has been the stagnating wages and incomes of everyday Americans, which led directly to the overleveraging of Americans' largest assets: their homes," Rosenberg said. "By pledging to use TARP funds to keep people in their homes, using part of the recovery package to stabilize the housing market, which is the root cause of the financial crisis, and targeting investments to create long-term prosperity, President-elect Barack Obama and the Congress have made a crucial commitment to focus America’s economic strategy on the well-being of everyday people."

"The new prominence of critical investments in clean technology and clean infrastructure in this package rightly shows that clean energy is no longer a marginal topic and now sits at the heart of America’s economic strategy," said Michael Moynihan, the Director of NDN’s Green Project, who has long argued for clean infrastructure investment. "The inclusion of $32 billion in clean technology investments at the center of this package is not only vital to addressing our short term crisis but also has the potential to power the next great wave of prosperity."

For more of NDN's work on the economy, creating a stimulus for the long run, keeping people in their homes, and clean infrastructure, please see NDN's backgrounder on Economic Recovery:

  • Politics and the Economic Crisis by Dr. Robert Shapiro, 1/9/2009 - Shapiro argues that, for an economic recovery plan to be effective, we must also address the underlying causes of the "Great Recession," including the housing crisis.
  • Getting the Stimulus Right by Michael Moynihan, 1/6/2009 - Moynihan makes a number of suggestions for ensuring that the upcoming, record-size stimulus package is a success, including a board to oversee the vast expenditures.
  • The Global Economic Crisis and Future Ambassadorial Appointments by Simon Rosenberg, 11/26/2008 - With the mammoth task of rebuilding international financial architecture and recovering from a global recession awaiting the new President, Rosenberg points out the the ambassadors to the G20 nations will be key members of the economic team.
  • A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.
  • Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.
  • Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.
  • Trading in the Trading Down Economy by Michael Moynihan, 7/11/2008 - As economic activity trended downward, Moynihan argued for an economic vision that both moved America beyond the recession and positioned the country for long term prosperity.
  • A Laptop in Every Backpack by Simon Rosenberg and Alec Ross, 5/1/2007 – Rosenberg and the One Economy Corporation’s Ross offer a modest proposal for putting a laptop in the backpack of every American sixth grader, as connectivity to and facility with the global communications network are essential for success in the 21st century.

For more of NDN's 21st century economic strategy for America, please visit our Globalization Initiative page.

Times Offers Excellent Analysis of the Emerging Economic Debate

Edmund Andrews and David Herszenhorn of the New York Times today offer a very good overview of the how the debate over the economy is shaping up.  It begins:

WASHINGTON - The fresh evidence on Friday of the economy's downward spiral focused even more attention on two questions: Is the stimulus package being pushed by President-elect Barack Obama big enough? And will the component parts being assembled by Congress provide the most bang for the buck?

With the Federal Reserve having just about reached the limit of how much it can help the economy with cuts in the interest rate, Washington's ability to end or at least limit the recession depends in large part on the effectiveness of the big package of additional spending and tax cuts that Mr. Obama has made the centerpiece of his agenda.

And with the economy facing what now seems sure to be the sharpest downturn since the 1930s, the financial system balky and the government facing towering budget deficits, economists and policy makers acknowledge that there is no playbook.

"We have very few good examples to guide us," said William G. Gale, a senior fellow at the Brookings Institution, the liberal-leaning research organization. "I don't know of any convincing evidence that what has been proposed is going to be enough."

In part because Mr. Obama wants and needs bipartisan support, the package is being shaped by political as well as economic imperatives, complicating the process by putting competing ideological approaches into the mix.

It includes $300 billion in temporary tax cuts for individuals and businesses, in part to attract Republican support. It includes a big expansion of safety-net programs like unemployment insurance, which Democrats say makes both economic and social sense. It includes more money for highways, schools and other public infrastructure; more money for "green" energy projects; and more money to help state governments pay for health care and education.

Republicans, as always, are advocating for more and broader tax cuts. But the evidence is ambiguous about whether tax cuts will really spur economic activity at a time when consumers and businesses alike are frozen in fear and reluctant to let go of their money.

The risk is that Mr. Obama and the Congress will weigh down their effort with measures that cost many billions of dollars but may not have much impact on economic activity.

Tax breaks, for example, usually produce less than $1 of stimulus for every dollar they cost, economists say. Spending on public construction projects, like highways and bridges, produces the most economic activity - but there is a limit to how many projects are "shovel-ready," and even those take time to generate jobs and ripple through the economy.

You can read the rest here.  For more on our take on all this you can find many posts from recent weeks on the blog, and be certain to review this recent compilation of our economic writings over the last few years.  Be sure to review what has become one of our more influential works, A Stimulus for the Long Run.

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