Mark Zandi, a former John McCain adviser and the chief economist at Moody’s, said on Tuesday that there is a “better than even” chance of a new recession if we do nothing more to stimulate the economy, urging lawmakers to pass the president’s jobs bill at a debate on the legislation in New York.
Speaking to The National Memo prior to the debate, he said “there’s no home run” on juicing up the housing market and getting the economy going, but lauded the president’s new refinancing initiative for struggling homeowners as “a single that is substantive and meaningful.”
“It’s going to help a million or two homeowners refinance who wouldn’t otherwise have gotten help,” he said. His chief recommendation to further ease the overhang or drag of the housing market on the economy is to provide tax benefits to encourage real estate owned (REO) investment.
“One of the things that would be very helpful very quickly would be to allow REO investors to expense any REO investment they did next year, in 2012. Right now, businesses can expense equipment and software but that doesn’t apply to real estate investment. So I would give them that tax benefit to give them a bit more financial juice to go out and make REO investment. There’s going to be a lot of distressed property hitting the market probably later this year, early next, as the AG settlement comes to fruition.”
The settlement he refers to is the ongoing effort by most state attorneys general to extract about $20 billion in concessions from the biggest banks for illegal foreclosures in exchange for some form of immunity from future prosecution. The negotiations have been held up by some “rogue” AGs, including those of New York, California, and Delaware.
And the steps most likely to really free up the housing market and jump-start the economy — broad relief for troubled borrowers — are politically unfeasible, Zandi said.
“The only home run is if you had a very well-structured targeted principal write-down modification plan where taxpayers anted up money,” he said. “But the odds of that are extraordinarily low.”
At the debate on the economy, an “Intelligence Squared” event broadcast on NPR and hosted by New York University where two teams of panelists debated whether the Obama jobs bill should be passed piece by piece, Zandi said the status quo is one of “fiscal restraint,” and argued that despite Republicans lampooning them as wasteful and ineffective, the stimulus programs enacted since 2008 have been worthwhile.
The American Recovery and Reinvestment Act “succeeded,” and the Obama administration’s broader efforts have been “very effective” and “pretty well structured,” he offered before a sympathetic audience in Manhattan.
Zandi was joined in his argument by Cecilia Rouse, the economist and Princeton professor who was on Obama’s Council of Economic Advisors from 2009 until earlier this year. They faced off against Daniel Mitchell, a senior fellow and tax policy expert at the Cato Institute, and Richard Epstein, professor at NYU Law and a senior lecturer on the economy at the University of Chicago.
The supporters of more stimulus got the better of the evening, with 69 percent of viewers agreeing with their view that Congress should pass the jobs bill after the debate compared to 45 percent at the beginning of the debate.