It is striking that Geithner and his friends could be very creative in finding ways to rescue failed banks and financial institutions, but they were largely at a loss when it came to helping underwater homeowners. He tells us that allowing for cram down of mortgage debt in bankruptcy was a political non-starter that couldn't pass Congress.
Clearly it did not pass, but we can only wonder how hard the Obama administration tried. In 2010 I was on a radio show with the chief spokesperson for the main bankers lobbying group. He said that they could accept cram-down as long as it was sharply limited by the size of the mortgage and the dates from which it would apply. That may have just been a public posture, but if the financial industry was openly saying that it could accept some form of cram down legislation, it's hard to believe that Congress would touch nothing.
My alternative was Right to Rent, which would have allowed homeowners the right to stay in their home as renters paying the market rent for a substantial period of time (e.g., 5 years) following foreclosure. This would have given underwater homeowners security in their homes and also made foreclosure less attractive for creditors. In many cases they would have likely decided it made more sense to modify a mortgage rather than be stuck with a tenant for five years.
This proposal had the advantage of being a one-time change in rules to benefit homeowners in an extraordinary situation rather than being a big government program. For this reason many conservatives considered it reasonable. (Even Fox News host Neil Cavuto said the idea wasn't "crazy" after he stopped yelling at me, and then sent me a note the next day saying that he agreed with the policy.)
The administration's alternative was a set of programs that were at best badly designed. They required complex decisions on restructuring mortgages. Apparently Geithner and other top officials didn't realize that the major servicers had downsized and outsourced their operations to the point that the administration was effectively asking decisions on families keeping their homes to be made by people working in call centers in India. Over time the programs improved and the number of successful modifications increased. But Geithner repeatedly indicates that he was far more worried about helping someone who had spent too much on buying home than on bailing out an investor who took a risky bet on a bad bank.
Anyone reading the book will have little doubt that it is the bankers who ultimately enjoy Geithner's sympathy. Based on a study of bankers' home buying behavior he tells us that they were not acting criminally, but rather were caught up in the irrational exuberance of the housing bubble, as though these were mutually exclusive possibilities. It is likely that many of the top criminals in Enron ultimately believed in the company's business model. That doesn't mean they didn't break the law. In the same vein, bankers may have knowingly issued and securitized hundreds of thousands of fraudulent mortgages even if they believed that ever-rising house prices would make every mortgage a good mortgage.
Geithner also briefly comments on the efforts of Erskine Bowles and formers Senator Alan Simpson to craft a deficit reduction package. He says the effort to have the government live within its means is "a fight worth having (Page 451)." Given that the major problem now and for the foreseeable future is a lack of aggregate demand, and therefore a government deficit that is too small, many might think that educating the public on the relationship between the deficit and demand and employment is a fight worth having, but not Timothy Geithner.
The reality is that we had a completely preventable economic disaster hit the country. The result was millions of people losing their homes and/or their jobs, in many cases seeing their lives and the lives of their children ruined. With almost no exceptions the policy makers responsible for the disaster and the bankers who profited from it are doing just fine. And Timothy Geithner can't understand why everybody isn't happy.