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Progressives Won. Now What?

By Guest Blogger on Nov 12, 2008 at 5:00 pm

Our guest blogger is Brian Levine, a Senior Policy Adviser at the Center for American Progress Action Fund.

Last week, progressives won a resounding victory. The question is: Now what? Today, the Center for American Progress released its own recovery strategy for 2009 and beyond. The CAP report cautions against being “penny wise and pound foolish” as we confront large budget deficits in the short-term. We must invest immediately in health care, energy and education to help our economy through this crisis and lay the groundwork for future growth.

The report lays out a strategy that begins with stabilizing the economy by ensuring the solvency of financial institutions, restoring confidence to the credit and stock markets, and ending the housing crisis, while jumpstarting the recovery with an intelligently crafted stimulus package.

These steps must be accompanied by a sustained economic agenda that focuses on build­ing the foundation for a brighter future. As the report points out:

Today’s crisis is not just the failing economy but the looming barriers to future prosperity in the form of unsustainable and growing levels of health care costs, the lack of adequate clean, depend­able energy, and our inability to educate our children for the needs of our economy.

We must slow the growth of health care costs, which will require an upfront investment, partly because it requires universal coverage. In addition to covering everyone, we must incorporate new medical technologies into the system and promote more efficient delivery of care.

We need to invest in a new green energy infrastructure to create jobs now and begin the shift to clean, sustainable energy. Using energy more efficiently makes our economy as a whole more efficient. And renewable energy and efficiency are growth industries that can drive American economic leadership well into the future.

And the economic crisis must not prevent us from transforming the public education system to one that prepares our children to compete for high-quality jobs in the global economy and tackling the problem of college affordability.

After the period when deficit spending is needed to strengthen the economy, we must restore fiscal discipline as quickly as possible.

Fannie And Freddie Take The First Step, But Far More Must Be Done To Help Homeowners

By Pat Garofalo on Nov 12, 2008 at 11:30 am

foreclosure.jpgToday, the Wall Street Journal reported that mortgage giants Fannie Mae and Freddie Mac “said they would help streamline the modification of loans for potentially hundreds of thousands of homeowners who are 90 days or more behind on their mortgage payments.” This is a move by the Bush administration that is meant “to help troubled homeowners“:

To qualify, borrowers would have to be at least three months behind on their home loans and would have to owe 90 percent or more than the home is worth…Qualified borrowers would get help in several ways: The interest rate would be reduced so that they would not pay more than 38 percent of their gross income on housing expenses. Another option is for loans to be extended to 40 years from 30, and for some of the principal to be deferred, interest-free.

The plan focuses only on loans that Fannie and Freddie own or guarantee. While Fannie and Freddie are “the dominant players in the U.S. mortgage market,” they hold “only 20 percent of delinquent loans.” Sheila Bair, chairman of the Federal Deposit Insurance Corp., said the plan “falls short of what is needed to achieve wide-scale modifications of distressed mortgages.”

Despite the criticism from Bair and others, like Sen. Charles Schumer (D-NY), this plan is a step in the right direction for an administration that has been woefully hesitant to take any action that would aid homeowners. However, Bair and Schumer are absolutely right to say that the plan does nowhere near enough. Far more must be done to include lenders outside of Fannie and Freddie in a widespread mortgage restructuring plan.

As part of a new book entitled Change for America: A Progressive Blueprint for the 44th President, Center for American Progress Senior Fellow Michael Barr lays out how the federal government can “create a process for the rapid and transparent repricing and restructuring of existing home mortgages themselves”:

The Federal Reserve would run auctions, in which Treasury and the private sector would purchase mortgages from current lenders and investors at discounts determined by the auction process. These mortgage holders would take a hit, trading a reduction in asset value and yield in exchange for liquidity and certainty.

The Bush administration has been quick to bail out troubled financial institutions (in the case of AIG, repeatedly). Action aimed at helping troubled homeowners was long overdue, and can not end with Fannie and Freddie.

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