How to Kill the Recovery

Image from SIGTARP report. Click <a href="http://www.zerohedge.com/sites/default/wp-content/uploads/images/user5/imageroot/madoff/Mortgage%20Market.jpg">here</a> for a larger version.

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


There’s plenty to sink your teeth into in the latest report to Congress [PDF] from Neil Barofsky, the main bailout watchdog, including yet more questions about the Treasury and Federal Reserve Bank of New York’s handling of AIG’s rescue. In essence, Barofsky, whose title is special inspector general for TARP (SIGTARP), calls the Treasury hypocrites for failing to extract concessions from AIG’s counterparties (like Goldman Sachs and Societe Generale) when they did just that with General Motors and Chrysler’s creditors during the automotive bailout. Barofsky’s report also criticizes the Treasury for failing to anticipate the backlash over AIG’s post-bailout executive compensation, especially to its Financial Products division that was at the epicenter of the financial meltdown.

But arguably the most fascinating finding in the SIGTARP report is the extent to which the federal government now backstops the housing market—in short, the federal government today is the housing market. According to SIGTARP, in the past two years, the private sector has shed $1.5 trillion in mortgage assets, and it’s the government who’s filled that massive void. “Between net mortgage lending and existing mortgage management,” the report says, “the Federal Government now completely dominates the housing mortgage market, with the taxpayer shouldering the risk that had once been borne by the private sector.” As the above chart shows, the government’s support of the housing market nears a staggering $11.5 trillion.

More worrying than the size of that support, without which frankly there wouldn’t be a housing market, is the fact that it could be ending soon. As the Washington Post recently reported, the federal government plans to wind down some of that backing in the next couple of months, and when that time comes, officials say they hope the industry will stand on its own. But as the SIGTARP report shows, that’s blind optimism; a major pullback in housing support could very well send the industry into freefall again and derail the glimmers of recovery we’re now seeing. It could undercut the Obama administration’s stimulus efforts, and possibly drag Obama’s support down with it. Even with government support, housing’s future is very much unclear—foreclosures set new records last year, too many homeowners still owe more than their houses are worth, more people are voluntarily defaulting and walking away from their homes. Yet the federal government wants to walk away from the industry itself sooner rather than later.

If SIGTARP’s findings reveal anything, it’s how much the government’s backstopping is critical to economic recovery. Without it, we could see shades of 2007 and 2008 all over again.

We've never been very good at being conservative.

And usually, that serves us well in doing the ambitious, hard-hitting journalism that you turn to Mother Jones for. But it also means we can't afford to come up short when it comes to scratching together the funds it takes to keep our team firing on all cylinders, and the truth is, we finished our budgeting cycle on June 30 about $100,000 short of our online goal.

This is no time to come up short. It's time to fight like hell, as our namesake would tell us to do, for a democracy where minority rule cannot impose an extreme agenda, where facts matter, and where accountability has a chance at the polls and in the press. If you value our reporting and you can right now, please help us dig out of the $100,000 hole we're starting our new budgeting cycle in with an always-needed and always-appreciated donation today.

payment methods

We've never been very good at being conservative.

And usually, that serves us well in doing the ambitious, hard-hitting journalism that you turn to Mother Jones for. But it also means we can't afford to come up short when it comes to scratching together the funds it takes to keep our team firing on all cylinders, and the truth is, we finished our budgeting cycle on June 30 about $100,000 short of our online goal.

This is no time to come up short. It's time to fight like hell, as our namesake would tell us to do, for a democracy where minority rule cannot impose an extreme agenda, where facts matter, and where accountability has a chance at the polls and in the press. If you value our reporting and you can right now, please help us dig out of the $100,000 hole we're starting our new budgeting cycle in with an always-needed and always-appreciated donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate