Economist's View: Paul Krugman: Debt, Depression, DeMarco

Why can't households get debt relief?:

Debt, Depression, DeMarco, by Paul Krugman, Commentary, NY Times: There has been plenty to criticize about President Obama?s handling of the economy. Yet the overriding story of the past few years is not Mr. Obama?s mistakes but the scorched-earth opposition of Republicans, who have done everything they can to get in his way ? and who now, having blocked the president?s policies, hope to win the White House by claiming that his policies have failed.

And this week?s shocking refusal to implement debt relief by the acting director of the Federal Housing Finance Agency ? a Bush-era holdover the president hasn?t been able to replace ? illustrates perfectly what?s going on.

Some background: many economists believe that the overhang of excess household debt, a legacy of the bubble years, is the biggest factor holding back economic recovery. ... And the obvious place to provide debt relief is on mortgages owned by Fannie Mae and Freddie Mac...

The idea of using Fannie and Freddie has bipartisan support. ... But Edward DeMarco, the acting director of the agency that oversees Fannie and Freddie, refuses to move on refinancing. And, this week, he rejected the administration?s relief plan.

Who is Ed DeMarco? He?s a civil servant who became acting director of the housing finance agency after the Bush-appointed director resigned in 2009. He is still there, in the fourth year of the Obama administration, because Senate Republicans have blocked attempts to install a permanent director. And he evidently just hates the idea of providing debt relief.

Mr. DeMarco?s letter rejecting the relief plan made remarkably weak arguments. He claimed that the plan, while improving his agency?s financial position thanks to subsidies from the Treasury Department, would be a net loss to taxpayers ? a conclusion not supported by his own staff?s analysis...

The main point, however, is that Mr. DeMarco seems to misunderstand his job. He?s supposed to run his agency and secure its finances ? not make national economic policy. If the Treasury secretary, acting for the president, seeks to subsidize debt relief in a way that actually strengthens the finance agency, the agency?s chief has no business blocking that policy. Doing so should be a firing offense. ...

The DeMarco affair ... demonstrates, once again, the extent to which U.S. economic policy has been crippled by unyielding, irresponsible political opposition. If our economy is still deeply depressed, much ? and I would say most ? of the blame rests not with Mr. Obama but with the very people seeking to use that depressed economy for political advantage.

Posted by Mark Thoma on Friday, August 3, 2012 at 12:24 AM in Economics?| Permalink? Comments?(7)

Source: http://economistsview.typepad.com/economistsview/2012/08/paul-krugman-debt-depression-demarco.html

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