Newsweek's Daniel Gross has an interesting interview with Treasury Secretary Tim Geithner that is worth perusing. My least favorite part is Geithner's answer to this question:What about housing? There seems to be universal dissatisfaction with the process for helping people who are facing foreclosure.We were very careful from the beginning—but the qualifications get lost—to say that we are going to focus the bulk of the financial force on bringing interest rates and mortgage rates down to cushion the fall in housing prices and help stabilize home values, which will feed into people's basic sense of financial stability.?[We tried to make clear] that what we'd do to prevent foreclosure would be very targeted and limited. We wouldn't try to keep people in homes they couldn't fundamentally afford. While we thought we'd lowered expectations, we're still being hung for letting expectations get ahead of policy.
While Geithner is right that people generally do forget about the efforts to deal with mortgage interest rates through Fannie Mae and Freddie Mac, and in particular the refinancings those institutions have offered to underwater borrowers, his expectations comment is a dodge. From the beginning, critics haven't worried that the loan modification program wouldn't live up to Treasury's targeted expectations. They worried that those expectations were set too low to deal with the massive problem of foreclosures and their repercussions in the broader economy. That's a substantive policy difference Geithner should have addressed, not a question of optics.
Nonetheless, Geithner has some interesting things to say about populism and why the administration's response to the crisis was both necessary and misunderstood. As always when talking about TARP, it is important to remember not just the failings of its implementation but that its benefits were not limited to the financial sector; when the economy was in crisis this administration (and, yes, the previous one) made unpopular choices that brought the country back from the brink of a real collapse.
-- Tim Fernholz
