Getting to the bottom of the housing crisis is key to economic recovery. So why is the Obama administration trying to block investigation?

Gretchen Morgenson's must-read article, "Attorney General of N.Y. Is Said to Face Pressure on Bank Foreclosure Deal," reveals how the Obama administration is putting pressure on attorneys general, especially New York's Eric T. Schneiderman, who want to bypass an arranged settlement in exchange for an extensive investigation of foreclosure fraud.

Dave Dayen has an important summary of the key issues and Marcy Wheeler brings up two additional items; both are excellent at laying out the field and are highly recommended. If the rush to a settlement is to help consumers, the federal government has many options already available. This is a problem in which the banks are screwing up at the state level and thus the Treasury can't run to the rescue in the same way. Hence, the application of all influence the administration can get.

A few additional thoughts for those joining this issue at this point:

- To put this in perspective, Michael Barr told Felix Salmon in November 2010 that investigations and strong enforcement were on their way. A week ago, I finally read an in-depth investigation that found that in "a staggering 92 percent of the claims brought by creditors asserting the right to foreclose against bankrupt families in New York City and the close-in suburbs, banks and mortgage servicers couldn't prove they had the right to kick the families out on the street... By robosigning documents and pressing foreclosures without the proper paperwork, banks have attempted to steamroll their way over sometimes-outgunned homeowners."

The investigation was done not by the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), nor by the Federal Deposit Insurance Corporation (FDIC) but by...wait for it...the New York Post. The Post! If the Post is capable of pulling off this investigation and making it public and subject to democratic discussion, why can't the Obama administration?  And this is what the New York AG's office has to deal with: signing a deal absolving and protecting the banks when places like the New York Post are out there finding evidence of massive fraud.

-  Here's a statement we'll refer to as "A": "During the financial crisis period of 2007-2009, the government took extraordinary actions to stabilize and protect the financial markets and industry, and these were the absolute best actions possible given information at the time and the tools available." You and I have our own thoughts on A, but let's assume it is true for this post.

Given A, it is now almost September 2011. It has been almost two and a half years since the Geithner Public Private Investment Program (PPIP) and the Wall Street stress tests were executed. At what point, is Wall Street comfortable enough that it gets to be held accountable for what is going on? At what point does the administration switch from "protect at all possible costs" mode to "hold just a bit accountable in a place with well-documented abuses that directly impact the economy, recovery and people's well-being"? Do we have to wait until 2013?  2020?

-  If you are a general reader of the financial crisis, you probably have a sense of what went wrong with securitization during the bubble. People made sloppy and outright bad loans for huge fees because they could pass them along to people down the line. You may also have a bad sense of what is going on right now in that it involves paperwork and confusion.

I want to emphasize to you that these are the same problem. The same problems on the way up the bubble -- a way of creating, packaging and handling mortgages that was brand new and created agency problems at every stage -- are the same problems on the way down. The documents that hold banks accountable aren't to be found; the special trust laws that allow the infrastructure of these products to work (tax-free) have been made a mockery; and agents have incentives to wealth-strip consumers and dump them even when modifications would be made better from the ultimate creditors' point-of-view.

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-  We do a lot of navel-gazing arguments about "neoliberalism" here, but a very explicit assumption of deregulating the financial markets was that laws and investigations would be enforced when things went sideways. As John D. Hawke Jr., Comptroller of the Currency, said when he announced that he was going to pre-empt Georgia's anti-predatory lending state laws in 2003: "We believe a far more effective approach [than anti-predatory lending laws] would be to focus on the abusive practitioners, bringing to bear our formidable enforcement powers where we find abusive practices -- after clearly articulating our expectations." The trust and property law violations that are at the heart of this couldn't be clearer. It's a dot-your-I's and cross-your-T's kind of law. This abandonment reflects less a different way of setting up the financial markets than an outright corruption of the whole idea of rule-of-law.

- It's reasonable to think that the banks themselves don't know the extent of the problem either and obviously no single bank has an incentive to figure out what it has done wrong over the past several decades. An investigation coordinates this.

- There's no theory outside "weeping job creators" of what is wrong with the economy that doesn't involve the housing market. Getting to the bottom of this, rather than slowly bleeding out consumers and the more general housing market, is essential for getting us back on track.

- Kudos to Eric T. Schneiderman for fighting for this under intense pressures from a Wall Street/Treasury team-up. I can't even imagine what that squeeze is like and it's awful that the administration is on the wrong side of this.

Mike Konczal is a Research Fellow at the Roosevelt Institute.

Americans are focused on paying back their debts while they worry about finding jobs and bringing home enough money to pay the bills.

This week's credit check: Consumer spending accounts for 70% of the US economy. Household debt is currently 90% of GDP.

There seems to be a Catch-22 right now that has a lot of people worried: consumers are feeling reluctant to spend and more inclined to save because the economy is so crappy, yet we need consumer spending to ramp up to stop it from sucking. Consumer spending, after all, accounts for 70% of the economy. Without that part humming smoothly, it'll be hard to get the whole system back to full working order. But according to economists at JPMorgan, household purchases dropped in June for the third consecutive month, the first time that's happened outside a recession since 1959 (all adjusted for inflation) -- although retail sales rose .5% in July.

So why won't Americans go out and spend their money like true patriots? Because a lot of them are focused on paying down the debt they racked up in the run up to the recession. The rate of borrowers 90 or more days late on credit card payments just fell to 0.6%, the lowest in 17 years. Total outstanding revolving credit card debt was down 4.6% during the first half of the year compared to the same period a year before. Consumers spent $72 billion more paying down credit card debts than buying things in 2009 and 2010. Clearly we have put a high premium on breaking free from credit card debts and avoiding the high interest rates and fees associated with being behind.

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But we have a long way to go. There's still a lot of debt hanging over consumers. In 1990, household debt was about 60% of GDP; in 2000, it was less than 70%. But right now it's at 90% -- better than the first quarter of 2009, when it was 99.5%, but still leaving plenty more room to deleverage.

Beyond high debt loads, consumers are also pretty freaked out by current economic signs. In the first weeks of August, consumer sentiment fell to the lowest level since 1980, when the country was in a recession (and we're technically not in one right now). What's getting them down? High unemployment, stagnant wages, and the ridiculous debate in Congress over the debt ceiling. Their top worries are about the difficulties they face in bringing money home -- and how little Congress seems poised to do about fixing their problems. Little wonder that when we're not sure we're going to have a job, let alone make enough to pay the pills, Americans are wary of splurging.

The Fed seems to have been hoping that it could goose consumers into taking on more debt to go buy things by announcing last week that it was going to keep credit cheap. But consumers aren't asking for more debt to help them spend. They're asking for more jobs and decent wages. After being admonished time and again for "recklessly" racking up debts in the run up to the financial crisis, now they're being admonished for not taking on enough debt. Rather than trying to find ways to make us borrow, maybe it would be better for everyone if we were simply employed and paid well for the work we're doing.

Bryce Covert is Assistant Editor at New Deal 2.0.

On top of high unemployment, we're suffering from a drop in wages in the aftermath of the recession.

This week's credit check: Wage growth fell from 3.8% in May 2007 to 1.8% in May 2011. Wage growth over the past decade was below Great Depression levels.

It was a year ago this week that Treasury Secretary Tim Geithner welcomed America to its recovery. "We suffered a terrible blow, but we are coming back," he assured us, and he had a lot of "good news to report": businesses in a "strong financial position," banks "strong and more competitive," and American families saving more. But that last point may tell a slightly different story. While corporations are seeing nice profits again and banks are back to their usual wheeling and dealing, Americans are still scrimping and saving, even a year later. This recovery period hasn't felt like a recovery for the average worker, who is still struggling desperately to make ends meet. And beyond the fact that this is clearly a jobless recovery, another reason all of us are still wounded from the crash is that this is also a wageless recovery.

An analysis from the Economic Policy Institute shows that we're not just suffering from high unemployment in the aftermath of the recession. We're also experiencing falling pay for those who are lucky enough to have work. It reports that "wage growth has tumbled in the recession and its aftermath, falling from an annual growth rate of 3.8% in May 2007 to a rate of 1.8% in May 2011." Even the employed are worse off, bringing in less pay for their work.

And wages were pathetic even before the crash. While there are many parallels between our era and the Great Depression, that time period beats us in wage growth. As Jed Graham puts it, "Over the past decade, real private-sector wage growth has scraped bottom at 4%, just below the 5% increase from 1929 to 1939, government data show." So as wages fall after the Great Recession, they come on top of the fact that we had less to begin with heading into the financial crisis than people living under Hoover.

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Fittingly, then, income is also falling during the "recovery." Total income was down about 15% between 2007 and 2009.  New tax data that came out yesterday showed that in 2009, average income fell 6.1% to $54,283, losing $3,516 since 2008. That's the lowest level since 1997.

All of this comes on top of the trillions in wealth Americans lost in the crash -- little of which has been recouped. According to figures from the Federal Reserve, US household wealth fell by about $16.4 trillion of net worth from just before the recession to the worst of it in the beginning of 2009. Since then, Americans have regained only a little more than half of that, or $8.7 trillion. That stands in contrast to GDP, which has regained all of its losses. The picture is far, far bleaker for people of color. According to Census Bureau data, the median wealth for Hispanic households fell by 66% from 2005 to 2009 and by 53% for African Americans.

If wages continue to stall and unemployment remains outrageously high, we'll likely stay in this weak "recovery." When asked what's holding back the US economy, Deutsche Bank economist Carl Riccadonna responded, "It's the weakness in consumer spending." Workers spending their hard-earned paychecks (aka consumer spending) accounts for 70% of our economy.

As millions continue to look for work and employed workers bring less home, Americans should be able to turn to a government increasing job growth and promoting wages. But with unionization down and the government fixated on austerity, few are championing the needs of workers. Where will they turn instead when in need of cash to pay for the basics? Credit card companies, who will be glad to lend them money for outrageous fees and interest rates.

Bryce Covert is Assistant Editor at New Deal 2.0.

A former Congressional staffer sees Dodd-Frank as a lost opportunity to rebuild a financial system in line with public needs. (Follow Matt Stoller on Twitter at @matthewstoller).

I was a staffer on the Dodd-Frank legislative package, and the whole process seemed odd from the very beginning. There was no attempt initially to ask the question, "what happened and what should we do about it?" There was no examination of the purpose of a banking system, and how to rebuild a system that aligns the public with the financial industry. There was no attempt to build legitimacy through a public education campaign about what Congress and the administration was doing, and why. Instead, legislators and very serious men in suits started throwing around terms like "systemic risk regulator" and "resolution authority", and then used the idea of a Consumer Financial Protection Bureau as a palliative for liberals.

My specific focus on the bill was the provision to audit the Federal Reserve, which was one of the bright spots (another could be the Consumer Financial Protection Bureau). This provision opened up the Fed's emergency lending facilities and its discount window to the spotlight, allowing for the beginning of a real debate over our monetary system. But overall, the Dodd-Frank bill was significant for its lack of significance.

In retrospect, this was by design. Congress created a panel -- the Financial Crisis Inquiry Commission -- to examine the cause of the financial crisis. But this panel had a mandate to deliver its recommendations after the passage of Dodd-Frank. In other words, Congress and the administration did not design Dodd-Frank to prevent another financial crisis. So what was the purpose of the bill? I suspect this can only be answered by looking at the overall policy thrust of the government since the beginning of the financial crisis.

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The clearest explanation is by Roosevelt Institute Fellows Tom Ferguson and Rob Johnson in their series on the Paulson Put. While a shadow bailout took place through the Federal Home Loan banks and the Federal Reserve from 2007 onward, eventually a fiscal and regulatory solution would become necessary. The first significant legislation in this thrust was the famous Bazooka bill (or Housing and Economic Recovery Act) signed in June 2008 that allowed Treasury Secretary Hank Paulson to take over and pump unlimited sums into Fannie and Freddie. The second was the TARP. Both of these bills were pivotal to providing the government with enough firepower to overcome the solvency crisis.

After the immediate crisis was contained, losses were socialized, and profits returned to financial executives, Congress had to put together a "solution". It would have a giant bite at the apple in restructuring our regulatory apparatus. But in order to perpetrate the oligarchic banking structure, it would be important that no structural changes to the industry be implemented. Not one regulator was fired for his or her part in the crisis. The Justice Department adopted a posture of legalizing financial control fraud by refusing to prosecute anyone involved in the meltdown, and continues to allow millions of cases of foreclosure fraud to continue. Ben Bernanke was renominated, and the administration fought a bitter below-the-radar battle to secure his confirmation. With a few modest exceptions, the risk-taking and leverage in our financial markets continues apace, and the deregulatory neoliberal mindset is still dominant. The Federal Reserve has been audited, but the system is now accountability-free for high level operatives in finance and politics. And now that Elizabeth Warren has been thrown overboard by the administration, the lockdown of the financial system is nearly complete.

And mostly, that's what Dodd-Frank accomplished. It rearranged regulatory offices and delivered a new set of mandates, but effected no structural changes to our banking system. Congress never asked what happened, or why, or even, what kind of banking system do we want? And that's because Obama's Treasury Secretary already had the answers to these questions.

The one dangling thread, and this is what worries the administration, is the housing market. But we'll save that problem for another day.

Matt Stoller is a Fellow at the Roosevelt Institute and the former Senior Policy Advisor to Congressman Alan Grayson.