{"id":102,"date":"2009-08-21T01:15:16","date_gmt":"2009-08-21T06:15:16","guid":{"rendered":"http:\/\/blogs.law.harvard.edu\/jjjj\/?p=102"},"modified":"2009-08-24T01:33:53","modified_gmt":"2009-08-24T06:33:53","slug":"prognostication","status":"publish","type":"post","link":"https:\/\/archive.blogs.harvard.edu\/jjjj\/2009\/08\/21\/prognostication\/","title":{"rendered":"Prognostication"},"content":{"rendered":"

… is the often art of the prophet and the fool.\u00a0 Nevertheless, I’ll dare to go ahead and describe what I expect will be, a decade hence, two consensus views about economic policy during the past tumultuous year.<\/p>\n

First, people will believe that on balance Ben Bernanke and the Fed did a spectacular job at averting depression.\u00a0 The risk of even more extreme collapse was real, and abundant provision of liquidity was stabilizing.\u00a0 Doing too little would have been the far greater risk, and the designation of Bernanke as hero<\/a> will have stuck.<\/p>\n

Second, people will conclude that the greatest policy failure was providing too much direct support to banks rather than to homeowners.\u00a0 Let me elaborate.\u00a0 First, many banks lent to anyone with a pulse during the boom, in the form of residential mortgages, credit cards, and commercial loans.\u00a0 When the bubble burst, so did these banks’ balance sheets.\u00a0 Some of the wave of bank failures<\/a> was inevitable.<\/p>\n

But consider the ailing institutions (including some of those deemed too big to fail) that were in trouble largely because of their residential mortgages.\u00a0 Many of these received lines of credit, support for being acquired, or direct infusions of resources (see this useful rundown<\/a> of these steps as of 7\/22\/2009).\u00a0 Suppose that instead of <\/em>most of the steps in that rundown, the Making Home Affordable<\/a> program had been vastly more aggressive:\u00a0 larger in size by an order of magnitude, implemented within months rather than years, and more generous to individual homeowners in amounts and eligibility.\u00a0 (Treasury celebrates<\/a> the accomplishments of MHA, but capacity constraints and foot-dragging by lenders and servicers have prevented it<\/a> from living up to expectations even at the actual–modest–$75B scale).\u00a0 These would have been the advantages:<\/p>\n