Obama's FDR Moment

Aug 17, 2011Eliot Spitzer

smiling-fdr-profile-150Americans are looking to the President for bold ideas. Here are two.

President Obama should heed the famous wisdom of FDR: "Above all, try something." Being passive in the face of rising anxiety breeds discontent, doubt, and ultimately, contempt.

Interestingly, the president's one grand moment to date -- his embrace of the plan to capture Osama Bin Laden --emerged from a willingness to be bold, even when many of his advisers were counseling otherwise. He defied the more modulated approaches many military advisers recommended, and the payoff, both substantive and political, was huge. The president should take this lesson and apply it to his actions in the domestic arena.

First, he should act dramatically to help the American homeowner. There is a continuing and incendiary crisis in the housing market, with about 20 percent of all homes underwater (that is, the mortgage owed on the house is greater than the value of the house). This is dragging down our economy, creating a downward spiral of foreclosures and abandonment. The lack of mortgage reform also reminds every homeowner of the unfairness attached to the bailouts: The banks, in their moment of insolvency and need, got hundreds of billions in direct cash payments, guarantees, and transfers in the form of artificially low interest rates, all of which have led to a massive transfer of wealth from taxpayers and savers to the banks. Yet homeowners who have seen their primary asset drop in value have been given nothing at all by the banks and nothing meaningful by the president.

The administration, in conjunction with the Federal Reserve, should insist that banks, in return for all the taxpayer subsidies they have gotten and continue to receive, reduce any mortgage that exceeds the value of the house. Once it is established that the homeowner is underwater, other variables can be considered to determine how much the mortgage should be reduced: the income of the borrower, the year the mortgage was issued, the behavior of the bank in recommending the mortgage, or the culpability of the borrower in misrepresenting income levels.

Borrowers with reduced mortgages would have more money to spend, thus boosting the economy and relieving the housing market of a huge overhang. Owners would regain mobility, and the market could set a clearing price. Many also believe that the banks would come out ahead --facing fewer foreclosures, less abandonment, fewer houses stockpiled.

In addition, the banks could also receive a piece of the upside when and if owners sell their houses for more than the value of the reduced mortgage. How much of the upside could be worked out with rules designed to encourage rational behavior by all parties. (If the bank got 100 percent of the price above the value of the mortgage, there would be no incentive for an owner to charge more; if the bank got only a tiny percentage of the price differential, it would never recoup the amount by which the mortgage has been reduced.) The opportunity is to force the banks to give the housing market a shot in the arm -- while also allowing them to retain an equity stake that permits them to recoup any short-term loss.

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The critical point is this: The best way to revive the housing market is to help out the millions of Americans who are underwater on their mortgages. It is also the best way for the president to make it clear he is acting on behalf of the public at large.

Second, the president should do more to help the American worker. He should establish a jobs program. Do the simple math: We are spending more than $110 billion annually in Afghanistan. Stop it. Or scale it back to the sort of covert operations and drone war that is warranted. Savings? Perhaps about $100 billion -- per year. Use that money to create up to 5 million jobs at $20,000 each. With the unemployment among those aged 16 to 19 at an astonishing 25 percent, and unemployment among black people at 15.9 percent, there is no question that the crisis of unemployment is destroying the fabric of our nation. Those who refuse to work get denied all other benefits.

Put Jack Welch and Jeff Immelt, former and current CEOs of GE, in charge of using this labor well. Just as FDR did during the Great Depression, put these Americans to work in states, counties, schools, parks. Make them work -- but pay them. Get the dollars flowing back into the economy to help pull us out of the Great Recession. And when the unemployment rate dips below an agreed upon number, indicating that the labor market is healthy again, phase out the program.

There are ideas out there. All the president has to do is argue for them. Americans are not used to feeling that we are not masters of our own fate. We are a nation steeped in the idea that we can redirect the course of history at will. What we need at this moment is a president with bold ideas and the passion to fight for them.

Eliot Spitzer is the former governor of the state of New York.

Crossposted from Slate.com.

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