Harvard economist sees mortgage debt hurting housing market for some time
The United States may have cushioned the fall from the 2008 financial crisis but stretched out the pain by its actions, one Harvard University economist said. Much of the pain comes from mortgage debt that rose as housing prices crashed and consumers found themselves underwater on their mortgages. "The debt overhang is the most prominent reason … why we are not having a normal recovery," economist Kenneth Rogoff said, while speaking with business reporters Friday at the Society of American Business Editors and Writers conference in New York. Rogoff is author of "This Time is Different: Eight Centuries of Financial Folly." Housing reforms are needed, including consideration of principal writedowns, Rogoff said. That could take the form of a "quid pro quo" in which homeowners who get a principal writedown share with lenders in the upside when their house appreciates. Still, Rogoff was skeptical about what housing reforms might actually occur or what shape they might take. "I'm told there are dozens of plans and I'm told they are all impossible," he said. "Certainly a smaller step would be to have looser monetary policy than we have now." Rogoff described the country's economic issues as a "once in 75 or 80 years" problem and one that will take significant time to resolve. Had the nation allowed more mortgages to default and go into foreclosure earlier, more of the housing problem might be behind us, he said. "Debt levels, they've come down a little but they are still really high," he said. Financial crises, he said, give countries an opportunity to "use a crisis to do things better" but requires the political will to make policy changes. "You look at the long run. You don't panic and you plan on having reasonably slow growth" for a long time, he said. ?Write to Kerry Curry. Follow her on Twitter @communicatorKLC.