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Rich Miller and Matthew Benjamin at Blomberg report: The White House is willing to spend more than the $50 billion already pledged to stem home foreclosures and intends to focus its efforts on reducing monthly mortgage payments, rather than principal, said Lawrence Summers, the president’s top economic adviser.
“We’re prepared to do what is necessary,” Summers said in an interview on Bloomberg Television’s “Political Capital with Al Hunt” yesterday. “Going directly at the problem means addressing affordability by addressing payments.”
Mounting foreclosures have hammered an already weakened housing market, helping to drive the economy deeper into recession. Economists surveyed by Bloomberg News forecast that gross domestic product will contract 2 percent this year, its biggest decline since 1946.
President Barack Obama will outline his proposal to deal with the housing crisis next week. The announcement will come after lawmakers voted on Obama’s $787 billion fiscal stimulus that’s aimed at restarting growth and providing for 3.5 million jobs.
Summers, who is director of the White House’s National Economic Council, said the economy will be in for a rough time for a while and that unemployment will continue to rise, even with the stimulus package.
“I fear the economy will probably be showing decline and jobs will probably be being lost for some time going forward,” Summers said. He added that the stimulus will probably prevent the unemployment rate from going above 10 percent, after it reached 7.6 percent in January.
Financial Plan
The U.S. has been in a recession since December 2007 and a financial crisis is making banks less willing to lend to consumers and businesses. The Obama administration this week laid out a multi-pronged strategy to address the issue, including the establishment of a public-private partnership to buy illiquid assets clogging banks’ balance sheets.
Summers, 54, brushed off the stock market’s initial reaction to Treasury Secretary Timothy Geithner’s Feb. 10 unveiling of the financial plan, saying the administration is focused on the long term rather than day-to-day market movements. The Standard & Poor’s 500 Stock Index dropped 4.9 percent the day of Geithner’s announcement, the steepest decline in three weeks.
Some investors had expected Geithner to signal that the government would be willing to pay more for the illiquid assets than they are worth. “There had been some leaks that had built up expectations for things that didn’t happen and shouldn’t happen,” he said.
Investor Interest
He added that “there have been many expressions of interest in providing some of that private capital” to buy the toxic assets.
He left open the possibility that foreign investors will be allowed to join the fund and take advantage of government financing. “We don’t want to be nationalistic about the approaches that we take,” Summers said.
As part of the administration’s approach to the crisis, regulators will subject about 20 of the country’s largest banks to stress tests to determine whether they can weather future shocks.
“Frankly, we don’t have as accurate an assessment of the situation of a number of institutions as we’d like to because we haven’t really done the stress test against a range of scenarios,” said Summers, a former Treasury secretary in the Clinton administration. More HERE
