As we all conduct the post-mortem on the administration's fumbled bank-rescue rollout, it's important to keep in mind what's so glaringly missing from the plan--or, rather, only given a placeholder: a plank addressing the mortgage crisis that sits at the center of the downturn. The plan includes merely a number--$50 billion--to be set aside for an as-yet-undisclosed program, an amount on the low end of what people inside and out of the government said was needed to fully address the problem.
True, the mortgage crisis is not the only thing hurting the economy, and many policymakers no longer consider it the central issue. Nevertheless, the continuing, and growing, wave of foreclosures is likely to force scores of small banks to shutter this year (some say up to 1,000 will be gone by the time this is all over), with ramifications that will ripple up and down the financial sector, neutralizing any effort to bolster bank lending and consumer spending.
I don't think the lack of a mortgage plan alone caused the Wall Street downturn yesterday; that said, its absence couldn't have been a welcome sign for a sector long convinced that its woes start and end somewhere outside its own poor decisionmaking. Worse, though, I see it as a moral failing on the part of the Geithner/Obama team. Millions of Americans are at risk of losing their homes, some for making bad choices but many--and, as unemployment rises, a growing majority--for reasons wholly out of their control. As an administration supposedly committed to Main Street as well as Wall Street, I expected them to dedicate at least some of the last few months to devising a response. Instead, the worst fears of the anti-Geithner crowd seem to be coming true: that he understands Wall Street, which is all well and good, but that he has no conception of why people outside the financial sector matter, too.