Peter Orszag is President Obama’s Director the Office of Management and Budget. Only 40 years old, he is the youngest member of the Obama Cabinet assigned the responsibility of developing and promoting the president’s budget. In the rescue of the U.S. financial system, Orszag, Timothy Geithner, Secretary of the Treasury, and Lawrence Summers, the Director of the National Economic Council, are the most influential in determining policy. Of the three, Orszag may have the most liberal sensitivity.
Orszag recently appeared on “The Daily Show”, the television program that offers the public Jon Stewart’s version of raucous commentary, invoking laughter by skewering public figures and public policy, albeit in a non-confrontational style.In the warm-up Green Room before the program, Stewart, feigning innocence and ignorance of detail, asked Orszag, according to the New Yorker magazine: “This has nothing to do with the budget – it’s this thing that I can’t get out of my head. With all that bailout stuff, why are they bailing out the banks? Why not the borrowers? These mortgages went bad, and then they were securitized and blah, blah, blah. So why not fix the mortgages, not the securities?” When Stewart asked Orszag why the government didn’t just bailout borrowers who have defaulted, Orszag replied, “The problem is, if you just focused on the people who defaulted you create this huge incentive to default.” Stewart looked at Orszag in astonishment, pointing out that the government is creating an equally huge incentive to default by bailing out the financial firms.
Behind all the complexities was a very simple fact. Monthly mortgage payments by millions of homeowners were what provided the money for the banks and financial institutions that bought mortgages from the banks and the Wall Street firms that created sophisticated securities based on these mortgages. Bailing out those who took out the mortgages would save millions of families from being foreclosed, would save entire neighborhoods, would eliminate the need for the bank bailout money, would revive the credit of the banks, would save the big bonuses paid to bankers, etc..
Why wasn’t this approach seriously considered? Politically and morally one would expect the Democratic Party officeholders to help the masses ahead of Wall Street. Are bailouts the special province of big business, highly paid executives, major donors to politicians and political parties? Is Jon Stewart right or is he just for laughs?
This post originally appeared on Relentless Liberal on May 3, 2009.