The Most Important Report of the Next Two Years

It is pretty audacious for me to claim that any given report is the most important one to be issued in the next two years given that I obviously have no idea what else is going to be published. I am feeling fairly confident about this one, though. It's not because the facts assembled are so groundbreaking, or the research goes deep to find things no one else could have found. It is because this report is a clear roadmap to the economic and political path the Obama White House should be taking. The report, Big Banks Bonus Bonanza, was issued by SEIU, National People's Action, the PICO National Network, the Northwest Federation of Community Organizations, and the Alliance of Californians for Community Empowerment. It makes the case strongly for an economic play that would give the country a far bigger economic boost than anything Obama is going to be able to get out of Congress in the next two years, and a political master stroke that would completely shift the political dynamics in the country.

I wrote about the broad economic strategy of forcing the banks to write down mortgages on Tuesday, but this report does a great job of laying out the numbers in stark detail. Bank robber Wee Willie Sutton famously said that the reason he robbed banks was because that was where the money was, and if we are looking to get our economy moving again, we should be looking to get the money to do it where the money is. Right now, more than ever, the Big Banks are where the money is concentrated. The most important fact by far in Big Banks Bonus Bonanza is this one: Right now, 11,000,000 American homeowners owe $766 billion more on their mortgages than their homes are worth, but if the banks were to write down those mortgage principals to market value and refinance them into 30-year, fixed-rate loans, you would get $73 billion pumped directly back into the economy -- every year for the next 30 years.

Now unlike extending tax cuts for the rich or reducing the estate tax, which tends to be saved and invested in long term bonds, this money would go directly into stimulating the economy and creating jobs. Think about who those 11,000,000 underwater homeowners are: They are almost entirely middle- and working-class families who have spent the last couple of years sweating bullets to save their main life investment after its value plummeted by 20 percent, 30 percent, or more. They haven't been spending money on new products, they haven't been taking any vacation trips with their families, if they own a little mom-and-pop business they sure haven't been taking any risks to expand it: They have just been desperately scrimping and saving and trying to hang on by the skin of their teeth. But if their mortgage is reduced to what their house is actually worth in today's market, that means their overall financial situation is far more stabilized, and it means their monthly mortgage payment will go down as well.

With a stabilized debt and lower monthly mortgage payments, with the psychological weight of probable foreclosure off their shoulders, these middle-class homeowners (at least the ones with jobs, which is most of the folks who still have homes) are exactly the kind of people who will be likely to start spending a little money in this economy. Maybe they will finally buy the car they have been holding off on now for years. Maybe they will do a little home improvement now that they know they will be able to stay in their home. Maybe they will feel able to finally make the investment in their small business they have been wanting to make, and hire a few extra folks as a result. The economic multiplier effect of this $73 billion would be as good as any money injected into the economy right now.

You want to know what the second most important fact in this report is? The $73 billion it would cost to write down those mortgages would be only half what the top six banks alone are getting ready to write in bonuses and compensation for 2010. If forced to write down these mortgages, the banks will scream bloody murder, even claiming it would endanger them and the entire economy. But all they have to do is cut their bonus and compensation packages, the vast majority of which go to top executives and traders, by 50 percent. Given all the cash these banks are sitting on, all the profits made and bonuses distributed in recent years, I have no doubt they can afford the hit. The ironic thing is that if they wrote down these mortgages, they would be getting monthly mortgage checks from all these homeowners, plus avoid the costs of all those foreclosure proceedings, but they don't want to write down the property because of their own phony accounting that claims the properties are worth far more than they actually are.

So here's the other little nugget the report alludes to: If you injected $73 billion into the economy through these write downs, the multiplier effects I was referencing earlier -- homeowners being able to free up cash to buy things and invest in small businesses and do home improvements -- would mean 1.8 million new jobs. That is a lot of jobs, folks: enough to drop the unemployment rate from the almost 10 percent it has been sitting at for a very long time down to the mid 8s. And it would finally begin to stabilize the housing market, which would do a lot for the economy all by itself.

All of these good economic tidings would be great for the president politically of course, but what would matter more than anything is that him taking strong action to take on the banks on behalf of economically pressed homeowners would do immeasurable good to his political standing in general. He wouldn't be going to congressional Republicans hat in hand, begging them to do the right thing on some piece of legislation that would never get passed. He wouldn't be having to choose what compromise to make. He could show both the Democratic base and middle-class swing voters that he was taking a strong stand on their behalf against a very powerful interest. Working alongside the state Attorneys General and tens of thousands of community activists working on this issue, he could order every agency in government -- Treasury, DOJ, Fannie, Freddie, HUD, FHA, etc. -- to exert maximum pressure on the Big Banks to write down these loans. That kind of strong decisive leadership would do wonders on his behalf.

Obama showing strength and leadership on this issue could help turn both the nation's economy and the president's political fortunes around. For his sake, and the country's, my biggest Christmas wish this year is that he takes this fight on.