From 'Hope' to 'Housing' – Oppenheim Law Looks Ahead to the 2012 Presidential Election

‘Hope’ stands as a fleeting memory for most Americans as unemployment stagnates, housing prices fall and economic growth looms as a lofty promise unfulfilled. And as we get closer to the 2012 Presidential Election, it’s becoming clear that the ideological political landscape that dominated the 2008 election cycle will be eclipsed by a menacing elephant in the room: the economy.

The President is well aware of the uphill battle he faces when it comes to convincing voters and campaign financers that his economic policies and regulations have not only been what we needed the past three years, but also what we need in the next four. According to The New York Times, President Obama has already started reaching out to the skeptical financial industry on Wall Street, hoping to win back one of his most vital sources of campaign cash.

While many on Wall Street view the President’s financial rhetoric as unfair to their industry, his apparent goal is to prove that his fiscal policies have helped to bring the banks and financial markets back to health and toward sustained growth.

The argument goes that the economy would have been dramatically worse at this stage had the Obama administration not taken the action it did in the wake of the real estate and financial crisis.

But how do you prove a negative? You can’t.

Historically, recessions have been ended by a wave of homeowner refinancing that predictably follows a lowering of interest rates. The President faces a number of obstacles to accomplishing a refinancing boom, however.

First, the number of homeowners who are underwater continues to rise.

Second, the banks have no motivation to lower interest rates of homeowners who are stuck in their homes.

Our current refinancing and banking system is stacked against the premise (and promise) that refinancing would push cash back into the economy, spur a consumer stimulus, and in turn promote spending, job creation and financial growth.

Too many people with good credit and jobs are stuck with high interest rate loans. The President would be wise to focus on developing a system for refinancing homeowners to stimulate an organic bailout of our financial crisis.

The fact that the President has more work to do to bring the country out of its funk and needs a different path to economic growth is backed up by a recent Time Magazine article debunking the myths of the new American economy.

Myth #1: This is a temporary blip, and then it’s full steam ahead.
The vast majority of economists do not believe we are on the way to a double-dip recession, but avoiding a double-dip is not the same as stimulating economic growth strong enough to revive the job market. The fact is that estimates point toward a five year recovery time before we return to a healthy unemployment rate of 5%.

Refinancing borrowers with strong credit and jobs could help speed up the process.

Myth #2: We can buy our way out of this.
Widespread government stimulus for loan modifications isn’t effective if homeowners don’t have jobs that allow them to make payments at all. There has been a decline in foreclosures, but the supply of foreclosed homes continues to undermine the national real estate market and dampen consumer spending.

The previous federal stimulus attempts have focused too much on homeowners who were already in trouble with their mortgages. While these homeowners certainly need help, shifting the focus to encourage refinancing of borrowers not underwater on their mortgages would allow this group to put its savings back into the economy. As the saying goes, “A rising tide lifts all boats.”

Myth #3: The private sector will make it all better.
Companies are making plenty of money. The problem is that they aren’t spending it to hire American workers. According to Time, American companies generated $1.68 trillion in profit in the last quarter of 2010 alone. Clearly, it’s a myth that American companies are waiting for economic and regulatory “certainty” before investing at home.

Myth #4: We’ll pack up and move for new jobs.
Most people couldn’t afford to move if they wanted to because they are underwater on their mortgages. While there are currently 3 million job openings, an additional problem is that the current labor pool’s skill set doesn’t match up with available jobs.

Myth #5: Entrepreneurs are the foundation of the economy.
New business creation has been shrinking since the 1980s. Is it coincidence that this started just when the financial sector began to explode? Lenders still aren’t lending, and the old methods of self-funding new business ventures through home equity loans or maxing out credit cards are no longer viable.

‘Hope’ was the foundation of President Obama’s victory in 2008.

The reality is Americans are still hoping for change.

The question is whether the President, or anyone for that matter, will be able to deliver.

Right now, it looks like if you want a bailout you better have your own plan in mind.

From The Trenches,

Roy Oppenheim