Lunchtime Must Read: Mark Thoma: Obama and Geithner’s “Biggest Policy Mistake”

Mark Thoma: The Great Recession’s “biggest policy mistake”: “The balance sheets of financial institutions were also…

…severely damaged as the assets they held lost value during the crash. Many of these institutions became illiquid and insolvent….The government’s response was… TARP that helped to restore the balance sheets of financial institutions…. Banks had a tough time to be sure, but the bailout worked…. Households didn’t get the same amount of help in large part due to the opposition of Geithner’s Treasury. That’s why I concur with Mian and Sufi that this is ‘the biggest policy mistake of the Great Recession’. A policy that would have provided households with mortgage debt relief could have made a big difference to those trying to rebuild their balance sheets and eliminate debt…. Americans were forced to mostly rebuild on their own, and this is a primary cause of the ongoing, slow recovery. It would have still taken time to recover even if households had been helped the way banks were helped. A nation can’t quickly dig out of a recession that’s so deep–but it didn’t have to take as long as it has.”