The piece is bookended by the story of Johnny Whitmire, a guy who was unceremoniously dropped from the rolls of the middle class by the Very Serious People In Charge of Things. His wife lost her state job. They fell behind on their mortgage. He applied for the Obama administration’s mortgage modification program. His modification was canceled, Citi billed him for back payments, and his home was foreclosed on. Then he got a bill for not cutting the grass at the home his bank seized, because banks keep foreclosed homes in the names of their former owners to avoid liability issues.

So, Whitmire is angry. And he has every right to be.

Whitmire is an angry man. He is among a group of voters most skeptical of President Obama: noncollege-educated white males. He feels betrayed — not just by Obama, who won his vote in 2008, but by the institutions that were supposed to protect him: his state, which laid off his wife; his government in Washington, which couldn’t rescue homeowners who had played by the rules; his bank, which failed to walk him through the correct paperwork or warn him about a potential mortgage hike; his city, which penalized him for somebody else’s error; and even his employer, a construction company he likes even though he got laid off. “I was middle class for 10 years, but it’s done,” Whitmire says. “I’ve lost my home. I live in a trailer now because of a mortgage company and an incompetent government.”

Whitmire’s life was ruined by a few specific “institutions”: Mitch Daniels and the Indiana Republican Party, the finance industry as represented by the bank that decided to screw up his paperwork and seize his home, and the Obama administration, which failed spectacularly on mortgage modification efforts for a variety of reasons.

The piece as a whole lays blame for the sorry state of affairs in Muncie at the crumbling of institutions — church, school, government — but Whitmire is actually a victim of elites. It’s elite consensus that loan modifications have to be limited and difficult for homeowners in order to preclude “moral hazard” and save banks from having to overexert themselves. Mitch Daniels, a leading GOP presidential contender among George Will-style Republicans, slashed state payrolls, in the name of fiscal responsibility. The sorts of people who pay for National Journal subscriptions are actually responsible for this guy’s life going to hell.

Fournier and Quinton’s piece goes on to describe the decline in various Muncie institutions: the mainline Protestant church dying as a corporate-inspired Megachurch thrives outside of town, some local government scandal involving improperly cast absentee ballots and an arrogant one-term mayor. The schools are apparently awful, in part because of elite-mandated testing regimes, more Daniels budget cuts, and, of course, because many of their most motivated students have been redirected to private-run and publicly funded charter schools. (Though as usual the awfulness of the public schools is simply stated — there’s no data or anything.)

But if we want to talk about how things got so bad for formerly middle-class people like Whitmire, the culprit is basically the financialization of our entire system of capitalism and the crippling of the labor movement; the slow death of the Mainline Protestant tradition doesn’t really enter into it. Whitmire was screwed by a venal bank and betrayed by an administration that gave venal banks way too much leeway to screw people.

The National Journal advertises that their piece on “the solution” will run next, but I’m not entirely convinced they’ve nailed down “the problem.”

Rather than settling anything, this agreement is simply a continuation of the policy framework of both the Bush and the Obama administrations. So what, exactly, is that framework? It is, as Damon Silvers of the Congressional Oversight Panel, which monitored the bailouts, once put it, to preserve the capital structures of the largest banks. “We can either have a rational resolution to the foreclosure crisis or we can preserve the capital structure of the banks,” said Silvers in October, 2010. “We can’t do both.” Writing down debt that cannot be paid back — the approach Franklin Roosevelt took — is off the table, as it would jeopardize the equity keeping those banks afloat.

This policy framework isn’t obvious, because it isn’t admissible in polite company. Nonetheless, it occasionally gets out.  Back in August 2010, at an “on background” briefing of financial bloggers, Treasury officials admitted that the point of its housing programs were to space out foreclosures so that banks could absorb smaller shocks to their balance sheets.  This is consistent with the president’s own words a few months later.

In October 2010, Obama publicly revealed how he sees the mortgage debt crisis. “This is a multitrillion-dollar market and a multitrillion-dollar problem,” he said, “and we’ve only got so much gravel.”

“We can’t magically sort of fix a decline in home values that’s so severe in some markets that people are $100,000 to $150,000 underwater,” he continued. “What we can do is to try to create sort of essentially bridge programs that help people stabilize, refinance where they can, and in some cases not just get pummeled if they decide that they want to move.”

At the time, the President was referring to HAMP, the $75 billion program announced in March 2009 as the administration’s signature program to address problems in the housing market. HAMP had been created because Sen. Jeff Merkley of Oregon demanded some remaining bailout money be used to help homeowners, or he would withhold a critical vote on unlocking the authority for the administration to get more TARP money. Larry Summers sent a letter to Merkley offering both a debt write-down plan (“cramdown”) and the dedication of up to $75 billion of money to help homeowners, in return for his vote.  In fact, administration officials had already decided that they would not pursue a debt write-down.

The settlement announced yesterday, whether you believe the $25 billion number (of which only $5 billion is actual cash), is one-third the size of HAMP. As Obama noted nearly two years ago, that’s just not very much gravel.

A more realistic solution to the problem was actually debated within the administration during the transition, in debates revealed by economist Laura Tyson at the Financial Times’ View from the Top Conference in 2011.  She noted that top officials had to decide whether to engage in mass write-downs of debt similar to FDR’s programs in the 1930s by using tools such as judicial modification, or whether to allow millions of foreclosures to go forward. They chose the latter. The current foreclosure epidemic, in other words, is partially a policy choice.

Everything done subsequent to that decision has been designed to mask this essential policy choice. This settlement is simply the latest example. While the headline number on the settlement is $26 billion, the actual cost to the banks and benefit to homeowners could be far lower, depending on how this complicated system of “credits” will be allocated. The banks will in all likelihood be able to charge off activities they had already planned, such as not pursuing deficiency judgments, refinancing and loan modifications. Some of the money may wind up being be paid not by banks, but by investors, such as pension funds.

Moreover, when the banks have reached settlements with law enforcement officials, they generally don’t hold to them.  The Nevada attorney general recently sued Bank of America for violating an agreements the state had made with Countrywide (once the largest mortgage originator in the country, now owned by BOA)  to end various predatory practices. When you issue parking tickets instead of handcuffs for multibillion-dollar crimes, the crime spree continues unabated. And obviously, HAMP, which was originally budgeted at three times the size of this settlement, has been a complete catastrophe.

Undergirding all of the chatter about the settlement is a basic reality that is not acknowledged by the administration.  There has simply been no thorough investigation of how the mortgage servicer market works, or how extensive forgery and fraud are. Banks routinely claim that few people have lost their home due to faulty foreclosures, and while that’s probably not true, we simply don’t know the extent of the problem. In effect, this settlement is a solution imposed on a problem yet to be diagnosed.

The next investigation

At the State of the Union, the president announced a new task force to investigate the abuses leading up to the mortgage crisis, as well as related tax and bank fraud questions.  This force is a multi-headed hydra, led by officials from the Department of Justice and New York Attorney General Eric Schneiderman.

The initial signs aren’t hopeful; DOJ has assigned 55 people to the task force, including 10 FBI agents. During the S&L crisis, which was 40 times smaller that this one, roughly 1,000 FBI agents were involved in the investigation. To put it another way, given the $5 trillion of home equity lost in the crisis, DOJ has assigned one person for every $100 billion lost. It is as if Apple lost its entire cash horde of $100 billion, and the government assigned just one person to find out what happened.

But there has been a good amount of private litigation and effort already, so though unlikely, it isn’t absolutely hopeless that there could be some handcuffs. A good test case to see what happens next is to see who is chosen to head the task force on a staff level. Someone like former TARP Inspector General Neil Barofsky or Rep. Brad Miller of North Carolina would indicate some level of seriousness. A traditional Justice Department bureaucrat would indicate otherwise.

Settlement or no, the housing crisis isn’t going away. The entire mortgage market at this point is backstopped by the government, and even so, housing prices are sliding. The roughly $1 trillion of underwater mortgages and the destruction of the rule of law in the private mortgage market need to be dealt with, one way or another. And they will be, whether through a restoration of a healthy housing market, or through the end of broad homeownership as part of the American experience.

Not only does the foreclosure deal add up to peanuts compared to the $350 billion tobacco settlement, but it also pales before the size of the problem that it is theoretically supposed to address. The amount of negative equity held by Americans in their homes is currently calculated at around $700 billion. As a result of the foreclosure settlement around 750,000 Americans who lost their homes to foreclosure will receive checks of around $2,000 and another million homeowners will see the size of their outstanding loans reduced by an estimated average of around $20,000. Sure, any additional stimulus will be sorely appreciated in today’s demand-constrained U.S. economy, but a $2,000 check isn’t going to make up for a foreclosed home, and it is silly to think the banks will feel more than a slight pinch. The banks have already reserved enough capital to cover the checks that they are going to have to cut (around $5 billion). Compared to the damage caused to American families by both the financial crisis and the rush to foreclosure, the banks are getting off easy.

Obama may be technically correct to say that the settlement “will deliver some measure of justice for some families who have been victims of abusive practices,” but it’s wrong to treat the news as any kind of real payback for bank misdeeds. It’s just nibbling around the margins.

So is it a sellout — “another raw demonstration of who wields power in America,” as Naked Capitalism’s Yves Smith, — undoubtedly the harshest critic of the Obama administration on housing policy and bank reform — argues? That’s a little harder to say, and a lot depends on the future course of events.

Some defenders of the settlement are arguing that the size of the deal is smaller than it might otherwise be because the government has retained the right to sue the banks for a wide variety of mortgage-related bad behavior stretching beyond the fraudulent processing of foreclosure paperwork at the heart of this deal. In particular, the states attorneys general of New York and California can continue their own separate investigations. As Felix Salmon writes, “other big-money lawsuits over securitization can and almost certainly will still be brought — which means that the big banks all still have significant litigation risk hanging over their heads.” As if to punctuate this point, on Wednesday night, the Wall Street Journal reported that federal regulators plan to sue some of the largest banks on charges of fraud related to the dodgy securitization of mortgages in 2007 and 2008.

The proof of this theory will only come when we see how hard the Obama administration and states like California go after the banks in the future. Given the track record of this administration, that may be doubtful. (Although, it may be worth noting that at least one conservative critic of the settlement, Douglas Holtz-Eakin, bases his critique precisely on the fact that banks still can’t put the whole crisis behind them. The administration can’t leave well enough alone, complains Holtz-Eakin, or “resist the political temptation to rouse its base with finger-pointing and lawsuits.”)

A more interesting question to consider, however, is how the housing relief contained in this settlement fits into other administration housing policy efforts currently in the works.

First off, government negotiators are still working on roping another nine mortgage providers into the deal, which could raise the overall settlement total from $26 billion to around $40 billion. In March, the rejiggered HARP refinance program will kick in, presumably allowing hundreds of thousands of homeowners to refinance at currently rock bottom mortgage rates. There is also strong pressure coming from the Federal Reserve and the White House to convert currently unoccupied foreclosed homes owned by the Fannie Mae and Freddie Mac into rental properties, a step that would remove excess inventory from the housing market.

Each individual nibble here is unlikely to make a profound difference, but taken together, all these initiatives add up to the most concerted effort the Obama administration has taken to date to bring relief to the housing sector. It’s also worth noting that it’s all happening without any help whatsoever from Congress. The approach does not address the desire for punishment that so many would like to see meted out upon the banks, but it will likely help spur additional economic growth. At a point when the economy already seems to have solid momentum toward recovery, every extra bit of help is gravy.

Freddie Mac paid Gingrich’s consulting firm at least $1.6 million for his time. Exactly how much — and how much went to Gingrich — is still unknown, because reporters haven’t seen the contract between Freddie Mac and Gingrich’s Center for Health Transformation. Gingrich initially said Freddie Mac refused to waive a confidentiality agreement that would allow him to release the contract. But:

Freddie Mac officials said last week that Gingrich was “welcome” to release the contract, under which his consulting firm was paid at least $1.6 million over eight years for his services.

So Gingrich said it’s up to his partners at his former firm to release it. For some reason, a lawyer for Center for Health Transformation is still blocking the release. He wrote to Bloomberg News:

Even though Freddie Mac is willing to allow the document to be made public, allowing a release of the documents in this case might put the confidentiality of other Center for Health Transformation clients at risk, said Stefan Passantino, an attorney representing the firm.

“The risks of any kind of confidentiality waiver, even if the company tried to limit it to one client or one document, are too great to be feasible,” Passantino said in an e-mail yesterday. “A limited waiver is not possible and I am unable to authorize such a release.”

It’s just too risky! Other clients may accidentally waive their own confidentiality agreements and the world will learn how much Newt Gingrich bilked them for. Releasing just one specific document relating to one specific client could put the entire world at risk of an EMP strike, too. You can’t be too careful.

Gingrich is in the midst of his spite-driven campaign death spiral at the moment but he’s still loudly defending himself against the charge that he actually did what Freddie paid him to do, because that would, in the GOP interpretation of history, make him responsible for the entire recession.

Fannie and Freddie by no means “caused” the crisis — they entered the subprime game extremely late, the worst loans were made by the private sector, and the securitization of bad mortgages was the work of wholly Wall Street wizards — but the right-wing line against them has a grain of truth to it. Democratic insiders controlled Fannie and Freddie, and Fannie in particular threw money and favors at politicians in order to avoid facing or complying with tougher regulations (just like wholly private corporations do every day).

But the Gingrich role in this rankles the GOP in particular because it means they can’t simply blame Barney Frank and Barney Frank alone for the financial crisis. Gingrich was on the payroll to perform outreach to Republican lawmakers. The point of the influence-buying game is that it works best when it’s bipartisan.

Gingrich’s job was to get Republicans on board with the profit-maximizing strategies of the GSEs, and his own former chief of staff was Fannie’s senior vice president for regulatory policy (i.e., lobbying for looser regulations). No one could’ve predicted that they’d need the GSEs to be a handy scapegoat a few short years later.

Households headed by adults ages 35 and younger had a median net worth of $3,662 in 2009. That marks a 68% decline in wealth, compared to that same age group 25 years earlier.

Over the same time frame, households headed by adults ages 65 years and older, have seen just the opposite. Their wealth rose 42%, to a median of $170,494.

It gets worse, for young people: “37% of the young households held zero or negative net worth in 2009, up from 19% in 1984.”

Boy, so what are all these old people complaining about, so much? (Immigrants, mostly.)

This growing disparity is the result of a lot of factors, but the most powerful force driving the net worth of young people ever downward is debt. Lots of young people are, as we have repeatedly noted, graduating college with mountains of student loan debt, and today’s job market is not exactly robust. And many young people who listened to the conventional wisdom and purchased a home have found that to be a poor investment. Old people who already owned their homes weathered the housing bubble and its collapse largely intact. Homeowners 35 and under were and are simply screwed.

To make up for the fact that advertisers and film industry marketers don’t care for them, old people instead have the United States Congress, which is made up almost entirely of old people. For old people, America is practically a European socialist utopia, with single-payer healthcare and everything. It’s laissez-faire for the rest of us suckers.

The fact that this gap is getting worse helps explain why so many older Americans don’t get it, when the young people complain. The amount of debt young Americans take on today is way higher than it used to be, the opportunities for class mobility are shrinking, and the life choices that worked for earlier generations looking to join the middle or upper classes (college and homeownership) have largely become massive rip-offs.

With the most recent crash and recession, young people have gone from a generation that worried they’d never be able to afford the homes they grew up in to one that is unable to leave those homes (and then they’re called shiftless and lazy), and the response of the political class has been … austerity for most. It is the primary argument of the austerity pushers (and their allies, the deficit hawks) that young people should give in and accept that “we” can’t afford to sustain the fairer society that older Americans enjoyed. That argument would be more convincing if the current Bad Times were affecting everyone equally, instead of simply the already young and poor, but every week more data arrives showing that those who made a killing before the house went bust are doing fine, thank you.