The Passion of Rick Santelli

Ezra Klein’s read-out on what the Obama administration could have done to solve the crisis (spoiler: almost nothing) is revealing and depressing, with good new quotes from people who were there. In this section, he escavates one of the really forgotten details of the Tea Party’s history.

Recall that Rick Santelli’s famous CNBC rant wasn’t about big government or high taxes or creeping socialism. It was about a modest program the White House was proposing to help certain homeowners restructure their mortgages. It had Santelli screaming bloody murder.

“This is America!” he shouted from the trading floor at the Chicago Board of Trade. “How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills? Raise their hand.” The traders around him began booing loudly. “President Obama, are you listening?”

If you believe Santelli’s rant kicked off the tea party, then that’s what the tea party was originally about: forgiving housing debt.

Ultimately, concerns about the politics and policy questions behind widespread debt forgiveness were sufficient to scare the administration off of the policy. It’s a decision some ex-members of the White House regret.

“If we had thought harder about Rogoff and Reinhart, we might have made some different trade-offs regarding debt reduction,” [Jared] Bernstein says. “Moral hazard is a big problem when you’re making policy regarding write-offs and principal cramdowns. It was always in the room when you were trying to help one underwater homeowner write off some debt while the person next door was playing by the rules and paying their mortgage every month. But with hindsight, I might have argued more rigorously against the risk of it.”

This suggests that there was a real weak-knee reaction to the unexpected backlash to mortgage reform. That would explain the subsequent, even weaker-kneed lack of a defense when “cram-down” got off the ground. Now – we’re not saying that the administration’s ideas would have worked and were shot down. The stuff we did get, like Making Home Affordable, has been fumbled and bungled beyond any real usefulness. That suggests that the skeptics were right about the ability of government to fix this. The other lesson to take from the Santelli experience: Just one month into the Obama presidency, compassion for the people screwed by the banks was waning fast, limiting policy responses.