After watching more than six hours of congressional grandstanding by both Democrats and Republicans on Wednesday, when the CEOs of eight of the biggest financial institutions in the U.S. came before Barney Frank's House Financial Services Committee for a dose of ritual abuse, my main reaction was that there might be better ways to spend my time than imbibing politics as bad theater 24 by 7.
But the hearing did succeed in generating some real news. Several lawmakers asked the assembled CEOs if they would support a foreclosure moratorium while the government finalized its new "financial stabilization plan." The CEOs whose banks were involved in the mortgage business expressed a willingness to do so. Today, reports the Wall Street Journal, Citigroup and J.P. Morgan Chase are following through on their promise. Both banks have agreed to a "moratorium" on foreclosures for at least a few weeks.
"We will not add to the foreclosure process any new owner-occupied residential loans that are owned and serviced by J.P. Morgan Chase," the company's Chief Executive Jamie Dimon said in a Feb. 12 letter to Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee. The moratorium on new foreclosure actions would remain in effect through March 6 and is similar to a 90-day foreclosure freeze J.P.Morgan announced Oct. 31.
"We believe three weeks is adequate time for the Treasury to announce -- and for us to implement -- a new plan," Mr. Dimon said.
The banks are obviously desperate for positive public relations spin as they await the latest word from Washington on their fate. But maybe this move also amounts to more than just spin? We have substantial reason to believe that the administration is putting together a new plan to stabilize the housing market. Ideally, whatever action is taken on that front would be in conjunction with further moves by the Treasury to refine its strategy towards the banking sector into something more meaningful than what has already been presented. Judging by his column today, "Failure to Rise," Paul Krugman has already all but given up on the Obama administration's efforts to tackle the economy. But How the World Works will maintain a state of willful optimism for a little while longer. I want to believe that behind the scenes, the Obama administration is coming up with a coordinated plan to address our economic ills. The new moratoriums on foreclosures by Citigroup and J.P. Morgan Chase gives us a new window of expectation for that plan to be rolled out. So I'm going to give Obama another week or two before complete capitulation to the dark side.
We also have a little more news on the housing plan, delivered directly from Washington to How the World Works by Salon's Mike Madden, who attended a breakfast this morning featuring Barney Frank. organized by the Christian Science Monitor.
According to an e-mail from Madden, Frank said that politically speaking, it will be impossible to get Congress to approve any more money for banks until housing is addressed somehow.
"Money to reduce foreclosures can now go forward," said Frank. "But for anything else, they won't get a penny until they've brought back some public confidence" that government is not letting Wall Street run amok. "I think the details (from Treasury) on the foreclosure part are going to be good."
The key strategy would be to attempt to reduce the principal owed, and not mortgage interest rates, "thereby helping to increase equity in the house for homeowners in trouble, making it less likely they'll wind up underwater again," writes Madden.