Time to End the Denial over Mortgage Debt

Two campaigns ended this week. In one, a hostile electorate reshaped Congress, to create a foil to Barack Obama's policy ambitions. In the other, the Federal Reserve has spent the past few months trying to convince investors that it retains relevance even after its policy rate has lingered at zero for two years. Now the campaign season is over, further swift actions are needed to boost the fitful recovery of the American economy.

All campaigns are full of inflated promises. The build-up to the Fed's latest quantitative easing has been no exception. The problems overshadowing expansion will not be lifted by inflating the Fed's balance sheet. In particular, the hard job of addressing the unresolved problems in the mortgage market remains unaddressed.

Financial authorities have to end the charade that the problematic loans made as the real-estate bubble inflated will be repaid. Those loans and the securities using them as collateral had dicey prospects when first made and have only gone further south. After all, since the balloon popped, real estate prices have fallen 35 per cent on average, and unemployment is near 10 percent. . . .

This article is available in full from the Financial Times.

Vincent R. Reinhart is a resident scholar at AEI. Carmen Reinhart is a senior fellow at the Peterson Institute for International Economics.

Photo Credit: Bigstock/Pond Shots

Also Visit
AEIdeas Blog The American Magazine

What's new on AEI

To secure southern border, US must lead international effort to stabilize Central America
image The Ryan pro-work, anti-poverty plan: Thomas Aquinas 1, Ayn Rand 0
image Does SNAP support work? Yes and no
image Obama Democrats lose their big bet on health exchanges
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Monday, July 21, 2014 | 9:15 a.m. – 11:30 a.m.
Closing the gaps in health outcomes: Alternative paths forward

Please join us for a broader exploration of targeted interventions that provide real promise for reducing health disparities, limiting or delaying the onset of chronic health conditions, and improving the performance of the US health care system.

Monday, July 21, 2014 | 4:00 p.m. – 5:30 p.m.
Comprehending comprehensive universities

Join us for a panel discussion that seeks to comprehend the comprehensives and to determine the role these schools play in the nation’s college completion agenda.

Tuesday, July 22, 2014 | 8:50 a.m. – 12:00 p.m.
Who governs the Internet? A conversation on securing the multistakeholder process

Please join AEI’s Center for Internet, Communications, and Technology Policy for a conference to address key steps we can take, as members of the global community, to maintain a free Internet.

Thursday, July 24, 2014 | 9:00 a.m. – 10:00 a.m.
Expanding opportunity in America: A conversation with House Budget Committee Chairman Paul Ryan

Please join us as House Budget Committee Chairman Paul Ryan (R-WI) unveils a new set of policy reforms aimed at reducing poverty and increasing upward mobility throughout America.

Thursday, July 24, 2014 | 6:00 p.m. – 7:15 p.m.
Is it time to end the Export-Import Bank?

We welcome you to join us at AEI as POLITICO’s Ben White moderates a lively debate between Tim Carney, one of the bank’s fiercest critics, and Tony Fratto, one of the agency’s staunchest defenders.

No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.