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Out of Their Depth

The timid, muddled approach Obama’s economic team has taken toward the housing crisis has left millions of Americans still underwater and facing foreclosure.


Out in the street: Foreclosures spiked to more than 100,000 per month in the summer of 2010.(AP Photo/Amy Sancetta)

Timothy Geithner sat still, subdued, as civil-rights and housing advocates took turns presenting a brutal reality check to President Obama’s Treasury secretary. The administration’s housing programs, they said, were ill-conceived, had failed woefully, and would be indefensible in an election year. From her seat around the long oval table at the center of Treasury’s ornate Diplomatic Reception Room, Janet Murguia, president of the nation’s largest Latino-rights organization, delivered a blunt ultimatum: Make dramatic changes to your housing program, or the National Council of La Raza will be unable to carry Obama’s message to Hispanic voters in 2012.

It was clear that Geithner had lost the room—and, beyond that, the meeting served as proof positive that the administration had failed in the larger struggle to help homeowners who had been under siege for years. The White House’s failure to appease La Raza on such a critical issue underscored how an economic sore spot could metastasize into a crippling, even devastating, political vulnerability as the election year approached.


But that day at Treasury, Jan. 13, 2011, was part of a slow but significant shift in Obama’s approach to the housing crisis. And, critically, it would include a change in policy management, as Gene Sperling would move from Treasury into the West Wing and advance a campaign to heal political wounds and to rewrite a story of undeniable failure.

The turnabout followed three years of tepid, halfhearted, and conflicted policies driven by a desire among Obama’s most senior advisers to avoid political risks and insulate the financial sector from further losses. It was a disastrous approach that did little for a market in free fall or for the millions of Americans still underwater and facing foreclosure.

National Journal spoke with more than two dozen sources involved in creating and implementing the Obama administration’s many housing initiatives, from Election Day 2008 to the present. The result is a story of missed opportunities, competing priorities, out-of-whack expectations, and a few subtle, yet noteworthy, successes—all impelled at least as often by political, rather than economic, calculations.


The approach remains haunted by a primal decision made almost immediately after Obama’s economic team took office. Although the federal government would spend reams of cash to stanch, to some degree, the losses suffered by the financial sector, the auto industry, and state and local governments, suffering homeowners would see no such relief, at least not on a widespread basis. Their bailout never arrived. It appears that the administration simply didn’t have the stomach for it.


The housing market was in its second full year of deterioration when Barack Obama won the 2008 presidential election. But that was far from the only crisis on the block. The financial sector was imploding, and preventing a full collapse on Wall Street commanded the attention of President Bush in his final stretch. At the same time, as credit dried up, employers began to shed workers, sloughing off 700,000 jobs a month in late 2008.

Some of the early members of Obama’s transition team began as quickly as Nov. 5 to grapple with these crises, starting to work on everything from the first-time homebuyer credit to the American Recovery and Reinvestment Act, better known as the economic-stimulus package. They also decided which of Bush’s initiatives would live on, and in doing so brought holdovers from Secretary Henry Paulson’s Treasury Department into the discussion—including people central to the housing effort who would stay into the first years of the Geithner reign.

Housing clearly was an area where Obama’s team thought it needed to take quick action simply to stop the bleeding. “Housing was 30 months in the hole when Obama was elected,” said Peter Swire, a member of the transition team who, after the inauguration, became one of the economic officials leading the effort. “The first goal was to stabilize.”


To its credit, Obama’s policy group recognized just how unprecedented the crisis was, and that realization helped to elevate the discussion about solutions to the highest levels, placing decision-making authority in the hands of Lawrence Summers, who would be director of the National Economic Council, and Geithner. Others, such as Housing and Urban Development Secretary Shaun Donovan and bank regulators, were called to the table inconsistently. Treasury was the department running the nation’s housing policy.

But the task was enormous—and enormously complicated. The economic team was committed to some form of government intervention, but it could find little consensus on the scope and scale necessary for that effort to succeed. Compounding the problem, the deterioration of housing markets throughout the country, and of the U.S. economy overall, accelerated between the election and Inauguration Day.

Niraj Chokshi contributed contributed to this article.

This article appears in the March 24, 2012 edition of National Journal Magazine.

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