Bailout plan turns to foreclosures
TEXT OF INTERVIEW
Kai Ryssdal: This has been a week of, what? The immediate bailout crisis has passed. Credit markets are slowly getting better. Equity markets, stocks, well, they’ve had their ups and downs. And downs. What we hadn’t heard much of, at least in substance until this week, is homeowners. Now all of a sudden Congress is talking about them, the head of the FDIC is talking about them. And we are going to talk about them with some people who have been here before. Leigh Gallagher at Fortune Magazine and David Leonhardt at the New York Times. Hello to you both.
Leigh Gallagher: Hi Kai.
David Leonhardt: Hello.
Ryssdal: Leigh, let me start with you. Have we now turned a corner to where we’re not so much worrying about Wall Street? Maybe what we’re focusing on now is the mortgage industry and homeowners?
Gallagher: Absolutely. I think in the past week we’ve really seen concern and panic turn from the rescue plan for the financial system to greater problems that are looming for the economy as a whole — things that $250 million invested into the banks is maybe not going to help — and housing is certainly one of those things.
Ryssdal: David Leonhardt, I have to ask you though, how do you do this? Because if everybody out there gets help on their mortgage, I want some.
Leonhardt: Exactly, and that’s really the problem here. We can do more than we’ve been doing with helping people stay in their homes and I hope we do, but we can’t solve the foreclosure problem if we suddenly try to save all of those people. One, it’s not clear that that’s fair and that we shouldn’t be using that money to help unemployed people for instance, maybe who rent. But the question is, how much would it cost to essentially prevent the rise in foreclosures that is coming? And the answer is, it would cost an enormous amount of money because we would not only have to save all the people who really would lose their homes over the next year, but because it’s very difficult to distinguish between those who would and those who wouldn’t right now, we would also have to save a lot of people who wouldn’t.
Ryssdal: Leigh, is spending that money worth it though, do you think?
Leigh Gallagher: Well, I think that it’s a huge question and I think that strikes right to the point. I mean, more than two years after the problems began happening with mortgages, the fact that we are still struggling over how to fix these loans just reflects the complexity of this situation. And just the way that these mortgages will really be spread out and sliced and resold, it’s just, it’s not that easy. I do agree with David, I mean, you can’t — saving everyone would be just a staggering sum of money. There’s lots of different proposals out there now and I think there has to be, I mean, we have to do something.
David Leonhardt: One nice way to look at it is that we should be doing more than we’ve done so far, but this is not a magic bullet.
Ryssdal: Do I hear you saying then that perhaps that’s not where the focus needs to be in the macro-economic time?
Leonhardt: I think that’s where part of the focus needs to be, but it would be a mistake if that’s where we shifted all of our attention. You can help the economy in other ways. You can help the economy by extending unemployment insurance, you can help the economy by starting projects — for example, fixing highways and bridges — you can help the economy by sending people tax rebates. And housing should be part of all that, but it’s not clear that it should be the only thing and it is certainly not the case that the only way to help Main Street is to help homeowners who are in trouble.
Ryssdal: Leigh pick up on what David was saying there about infrastructure and other kinds of public spending and the prospect of a new stimulus plan. It’s not going to be here’s $600 for every tax payer in this country, is it?
Gallagher: No, it’s not. I mean, this proposed plan doesn’t have tax rebates at its center and this is more focused on creating jobs, investing in spending, building are infrastructure and things like that. And those things are very, very important. I do think though that housing has to be a part of this as well. And that really, I mean housing is really at the root of this crisis and is the root from which all the other problems flow. I mean, borrowers defaulting is what caused the institutional crisis in the first place, so to not attack the borrower’s side at all was probably a little bit myopic and that’s what a lot of the talk was about this week.
Ryssdal: David, you’re there in Washington. It is your sense that this stimulus package is going to happen sooner rather than later?
Leonhardt: Well obviously the politics here are unusual in that we are less than two weeks away from a presidential election and a third of the Senate standing for election in the entire House, so I think we’re unlikely to get anything done until the election happens. Once the election happens, who knows what will happen. I think if John McCain wins that means there’s less reason for the Democrats to delay. If Obama wins then I think they may pass something and essentially say to President Bush, sign this if you like it and if you don’t, we’ll wait.
Ryssdal: David Leonhardt at the New York Times, Leigh Gallagher at Fortune Magazine. Thank you both so much, we’ll talk to you soon.
Gallagher: Thanks Kai.
Leonhardt: Thanks Kai.
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