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In a private meeting last year, President Obama’s chief economic advisors were at odds with a group of economists about what they saw as a critical need to reduce mortgage principal for underwater borrowers, according to coverage appearing at the Washington Post.
The WaPo coverage cites the debate over the mortgage debt overhang as “the biggest disagreement between some of the world’s top economists and the Obama administration,” and paints Treasury Secretary Timothy Geithner as the wedge between the group of economists and the administration.
Had the administration cut mortgage debt, economists including Alan Blinder, a former Federal Reserve vice chairman, said, the pace of economic recovery would have been quicker.
The coverage generated a response from Dean Baker at the Center for Economic and Policy Research — a leading economist himself not invited to be part of the secret discussions with the Obama Administration, ostensibly.
Calling the idea that underwater homeowners are holding back economic recovery “absurd,” Baker writes that “many of the country’s top economists have no better understanding of the economy today than in 2006.”
“There is no mechanism that would allow the economy to easily replace the combined loss of between $1 trillion and 1.2 trillion in demand that would be predicted from the collapse of the housing bubble,” Baker claims, saying that discussions of mortgage debt forgiveness fail to appreciate the full scope of the market dynamics in play.
That said, Baker writes that he does believe we should be trying to help underwater homeowners as a matter of public policy — he just doesn’t see any move to address the debt overhang as meaningful within the context of a broader economic recovery.
