The one thing

by: Mike Lux

Fri Nov 05, 2010 at 13:30


There's all the usual post-election palaver that happens after a Democratic loss: Republican and right wing triumphalism, the pro-corporate wing of the Democratic party and conventional wisdom pundits arguing that Democrats should "turn to the center" (by which they mean the Washington center- cutting Social Security, doing more trade deals, not antagonizing Wall Street- as opposed to what the center is for voters), and progressives arguing that Obama should stand strong on Democratic values and not cave to the Republican agenda. There's also a classic dynamic where some Democrats are urgently calling on people not to attack each other or the President, to try to keep the party from looking like it is in disarray, and others wanting to really engage in that old centrist versus left debate and critique.

I have been thinking hard about all this in part because it's the obvious thing everyone is thinking and talking about and in part because I am doing a lot of panels and media interviews right now- the latest one yesterday at Harvard where I did left-right panel with Bill Kristol on analyzing the elections. Interestingly, while Kristol and I naturally disagreed on the substance and political dynamics on many key issues- Afghanistan, tax cuts for the rich, health care among the big ones that came up- we agreed on the essential point that Obama can only survive by reconnecting with both the Democratic base and working class swing voters by being more populist on jobs, banking issues, and Social Security/Medicare (Republicans get honest while speaking academically in the weeks immediately after the elections- like Lee Atwater, also speaking at Harvard after the 1988 election, Kristol agreed that the swing vote in national elections is a working class populist vote).

At the end of the day, though, I keep coming back to one thing. Political positioning is significant, and I continue to believe populist rhetoric and substance on issues helps. Energizing the base and doing more to turn out Democratic base voters in 2012 will be important. But ultimately there will be only one way for Obama and the Democrats to come back in 2012, and that is for the economy to be substantially better. The thing Washington insiders always seem to glide over is the level of economic pain that is out there. The real unemployment rate is far higher than the official numbers because they don't include part time and temporary workers still looking for full time jobs as well as those who are too discouraged to look for work. Incomes have been flat while a lot of every day costs for things like groceries, gas and utilities, health care, and college tuition are a lot higher than they were a few years ago. Pensions and savings wiped out by the stock market collapse still haven't recovered for most people. And the housing crisis- 25% or more of homeowners are in real trouble, and housing prices are staying down- looms like a massive New York skyscraper towering over everything else.

Traditional Democratic ideas around Keynesian solutions for jumpstarting the economy, which we tried some of but not nearly enough, are politically dead with the incoming Congress. That means there is only one thing that will help revive this economy right now, and give working class homeowners some tangible benefits: getting these underwater mortgages written down so that people can stay in their homes. It is the only thing that will stabilize the housing market, and the only major lift to the economic well being of middle class voters. It will mean the big banks taking a big hit financially, but not many folks will shed a lot of tears about that. And here's the deal: Treasury, Federal Housing Administration, other regulators, and the Justice Department can make this happen without Congress doing a thing (which they won't). It would mean a big shift in administration policy, but I have come to believe it is the one thing that they can clearly do to give a major boost to the economic fortunes of the stressed out middle class. And if they do it, I hope they do it fullout, not by muddling through.

The political urgency of this is shown by the two most important statistics that explain the fate of Democrats on Tuesday are these:

-In 2008, Obama won the votes of people who said their personal economic situation had gotten worse by a 43% margin. In 2010, Democrats lost those voters by 29%. By the way, the number who said things were worse for them? 40%. That is an incredibly big swing in such a massive slice of the electorate, one on a scale that I don't remember in 25 years of looking at exit polls.

-People were asked by exit pollsters who they most blamed for the bad economy. Obama was only third on that list with 24%, while Bush was actually higher with 29%. Pretty much everyone who said Obama voted Republican, and everyone who said Bush voted Democratic. But the number one culprit on the list, the one that working class swing votes landed on, was Wall Street, at 35%. Guess who that swing group blaming Wall Street? Yup, the Republicans won 56% of their votes. Pretty ironic: these voters get right who was most to blame for our economic problems, but they don't feel like Obama has done enough about setting things right.

Better positioning, turning out base voters, having a unified party effort: it's all great. But Barack Obama will not win in 2012 unless he brings back the voters who turned against him in the two statistics above (which obviously were mainly overlapping voters). He won't win without reviving the economy at least to some extent, and that won't happen with another stimulus: it will have to happen by going to the heart of the problem, which is the housing market. This debate we are about to have on the foreclosure issue because of the problems the big banks created is actually an opportunity for Democrats to seize the initiative. They can take dramatic and effective action without having to do anything with the new Congress. It is the best thing they can do for themselves politically and economically. Let's hope they are bold and aggressive in fighting for the middle class on this issue.  

Mike Lux :: The one thing

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The one thing | 15 comments
WTF were you doing on a panel with Bill Kristol? (4.00 / 1)
He has the blood of hundreds of thousands of people on his hands.

You should be throwing garbage at him, not appearing on stage with him.


Geez... a "left-right panel" with Bill Kristol... How sad. (4.00 / 1)
What person with any integrity would do such a thing?

who from the left was on the panel? (0.00 / 0)
anyone at all?

[ Parent ]
Great point, Mike (4.00 / 1)
Reduction in mortgage principal should be #1 on the Democratic agenda to restore the economy.

Except ... (0.00 / 0)
The write down idea seems extremely binary: either we write down all these mortgages, forcing banks to take a bath, or we don't. And if the banks take a bath, who do you think will pay? Taxpayers surely.

What surprises me is that none of the "experts" in this debate are pushing a very simple idea that would address this problem and minimize taxpayer exposure. Instead of a binary choice, every current and future mortgage should have a cramdown clause added that allows a resetting of the mortgage principal in extreme cases. Extreme might be defined as 20% or more price decline in the home value in a three year period.

Here's how it might work. If you have a mortgage for $400k and you paid $500k in 2005 but today your house is worth $350k, and you put down $100k, this clause would reset the principal as follows:

1. Current market price (350k) minus 1/2 downpayment ($50k) = adjusted price
2. Adjusted price (300k) minus 10% (or 15%) to account for future price declines = new mortgage principal funded (270k or 255k).

In return, when you sell your home, here's what happens:

1. The bank gets 90 cents of every dollar above the new mortgage principal funded (255k or 270k) plus your 1/2 downpayment ($50k). You get at least half your original downpayment.
2. The bank collects the 90 cents on the dollar up to the original mortgage value plus 5% or 10% of the original mortgage principal ($420k or $440k).

When you do the math, if the homeowner stays in their home for 5-10 years, they will get most or all (or more) of their downpayment. Today they get nothing if they walk away.

Banks get a structured path to getting some repayment of their original investment in the mortgage. If they need, they can sell their upside interest to taxpayers or other entities.

Having gone through foreclosure only because our neighbors dumped their houses for extremely low prices (our home went from $585k to $355k in foreclosure), this is the only solution that would've kept us in our home with minimal fuss. FWIW, we also wound up walking away because HAMP is welfare for banks and the economy cratered where we lived.

As a taxpayer, I don't want to bail out banks again, in this case to write down principal. I'd much rather see this problem handled by simply adding to existing mortgages some structured way to reset principal balances.


[ Parent ]
Ironic? (4.00 / 1)
Pretty ironic: these voters get right who was most to blame for our economic problems, but they don't feel like Obama has done enough about setting things right.

Its not ironic in the sense you suggest - they are correct about that too - Obama has not done enough about correcting the problems. The fact that his financial team was culled from Wall Street underscores that he has yet to actually confront Wall Street in anything but rhetorical terms.

It might be ironic in the sense that the GOP supporters who were able to correctly discern the role of Wall Street in the economic collapse voted to return to the M$P that helped to create the problem in the first place.  

"It sounds wrong...
     ...but its right."


Keynesianism may be dead (4.00 / 1)
in terms of what bills can actually pass, but it's more imperative than ever that Democrats promote an agenda based on pro-growth, demand-sided Keysian ideas, beginning with a massive effort to rebuild our nations crumbling infrastructure.

This is an issue that anyone can relate to because everyone sees evidence of our crumbling roads, bridges, tunnels, rail system, dams and on and on everyday of their lives.  

Of course a demand-sided program can't pass now (although it could have, had our President listened to people like Robert Reich instead of the supremely rational freakonomic deep thinkers who got us in this mess), but it's more imperative than ever that we create a populist agenda which benefits people in obvious ways that they can relate to easily.

The GOP will surely reject it, but this will allow the Democrats to distinguish themselves from Republicans in conspicuous ways that allow voters to understand what's at stake in the content of policy, and that's a good thing.


I agree in principle (0.00 / 0)
But one of the problems in the 2010 election was that the stimulus package was crippled by concession to the conservatives and therefore, did not yield the benefits promised. While its all well and good to "create a populist agenda which benefits people in obvious ways that they can relate to easily", if such is not enacted the Dems are setting themseves up for another round of the same treatment, no?



"It sounds wrong...
     ...but its right."


[ Parent ]
They never politicized it (4.00 / 3)
thereby forcing the GOP to show their hand. It was conceived of in terms of compromise - i.e.,heavy on tax cuts and eliding rather than drawing conspicuous distinctions between the parties - from the start.    

[ Parent ]
good news (0.00 / 0)
next stop: the profit motive

[ Parent ]
Please explain (0.00 / 0)
How do you get from wobbly's point to "profit motive"?


"It sounds wrong...
     ...but its right."


[ Parent ]
I was reacting to the headline only (0.00 / 0)
I'm sure the rest was about we should all pull together to make sure Keynes saves capitalism, benevolent capitalism

[ Parent ]
Is it? (0.00 / 0)
This is an issue that anyone can relate to because everyone sees evidence of our crumbling roads, bridges, tunnels, rail system, dams and on and on everyday of their lives.

I like your perspective, TravisDisaster, but I respectfully suggest you make an effort to engage other posters here. Can't you find any common ground? Really, you sometimes remind me of Rosenberg when you are so completely dismissive of other perspectives. Please take this in the spirit intended which is not confrontational.



"It sounds wrong...
     ...but its right."


[ Parent ]
he also said (4.00 / 1)
it's more imperative than ever that Democrats promote an agenda based on pro-growth, demand-sided Keysian ideas

there's no common ground between myself and this point of view

capitalism has demonstrated itself to be a heartless, predatory system designed to enrich the moneyed few while crushing the hopes and dreams of working men and women, and slapping a "demand side" label on it won't change that fact

simply put, if you think the answer to the present economic crisis is "more capitalism", you and I are not friends


[ Parent ]
Do you honestly (4.00 / 1)
Do you honestly believe that the administration and the Party are even capable of that level of self preservation?

I don't


The one thing | 15 comments
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