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Populism and its Discontents — Political Views of a Foreclosure Crisis

Friday, 15 Oct 2010 | 1:03 PM ET

Last week, The Washington Post reported Democratic Senate Majority Leader Harry Reid's call for a nationwide foreclosure moratorium; in the next sentence, the article remarks upon the political calculus involved for the senator, who is currently "locked in a tight reelection campaign".

AP

Potentially more concerning on the political front, Representative Maxine Waters seems to be advocating a mandatory, across-the-board loan modification program, which would need to be implemented before any residential mortgage in The United States could be foreclosed upon. (Bess Levin clipped Waters' CNBC interviewfor Dealbreaker on Wednesday.)

Congresswoman Waters' performance is an unusual one: And Mark Haines' patience is immense as he calmly explains that someone always takes a hit when writing down the principal of a loan. But Representative Waters remains serene: She responds with allegations that the American public was 'tricked' into taking on the loans. She proceeds to list 'liar loans', among other reasons, as a cause for the vulnerable American public's deception — seemingly unaware that the liars in this scenario were the borrowers, not the lenders.

A few days ago, the Seattle Times also led with a storyon the vagaries involved in the mix of economic and political considerations at play: "While the allegations have suddenly become part of the political dialogue in a volatile election season, politicians are all over the map on the issue, some fearing that direct government action could snuff out a fragile recovery. Some candidates appear to be ducking the issue entirely, leery or unsure how to address it."

Much to his credit, President Obama has managed to resist the worst excesses of his party's left wing. To date, he opposes a nationwide foreclosure moratorium. But the political pressures will likely increase — particularly if the issues continue to polarize along partisan lines.

Surprisingly, or perhaps not, there's been a dearth of direct statements on the issue from the president thus far — which may ultimately prove to be highly politically astute.

In a recent interview on the Charlie Rose Show, Treasury Secretary Timothy F. Geithner said: "A national moratorium would be very damaging to exactly the kind of people we're trying to protect. We want to make sure we're holding these servicers accountable, that they're not causing any injustice to people who can afford to stay in their home, and we're going to make sure we're careful in doing that."

(At risk of parsing the statement too finely, the key phrase may be "not causing any injustice to people who can afford to stay in their home". Emphasis mine. The implication being, perhaps, that those who cannot pay their mortgages should rightly be foreclosed upon.)

I'm inclined to give a Secretary of Treasury the benefit of the doubt: Especially when he opts for the prudent course of action — even if it's predicated on politically tendentious logic.

Curiously, J.P. Morgan's Jaime Dimon echoed the same sentiments on yesterday's earnings call: "We're not evicting people who deserve to stay in their house," he said.

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