Still, Shaun Donovan, secretary of housing and urban development, had argued that debt reduction had an important role to play in healing the economy given the depth of the crisis. “It was of a scale that we had not seen before, and that clearly required extraordinary response,” Donovan said in a recent interview. – Obama’s efforts to aid homeowners, boost housing market fall far short of goals

Ah, but you see, Timothy Geithner, Larry Summers and Austen Goolsbee didn’t want to follow Donovan’s lead, which was to give banks payments to help reduce the debts of borrowers. They evidently didn’t see the purpose of making people owe less, so they could afford their mortgages. Tim, Larry and Austen didn’t see that it would help both the banks and the borrowers, as the Washington Post tells the story.

Pres. Obama was “disappointed.”

Then he came to “realize the problem was worse than he thought.”

Nearly three years later, it hasn’t worked out. Obama has spent just $2.4 billion of the $50 billion he promised. The initiatives he announced have helped 1.7 million people. Housing prices remain near a crisis low. Millions of people are deeply indebted, owing more than their properties are worth, and many have lost their homes to foreclosure or are likely to do so. Economists increasingly say that, as a result, Americans are too scared to spend money, depriving the economy of its traditional engine of growth.

The Obama effort fell short in part because the president and his senior advisers, after a series of internal debates, decided against more dramatic actions to help homeowners, worried that they would pose risks for taxpayers and the economy, according to numerous current and former officials. They consistently unveiled programs that underperformed, did little to reduce mortgage debts owed by ordinary Americans and rejected a get-tough approach with banks.

But Peter Orszag, a former senior White House economic adviser, said the administration has underestimated how much the nation’s massive mortgage debts would weigh the economy down after the financial crisis.

“A major policy error has been to put too little weight on the long, hard slog following a financial slump,” he said. “That leads you to being much less bold with housing.”

When you keep listening to people who are wrong, what do you expect?

Freddie’s analysts had concluded that the proposals were unlikely to help the millions Obama hoped. But, he recalled, the White House didn’t want to hear it. “They were a little outraged,” Moffett said, adding that he was told, “We need a strong set of numbers.” – Washington Post

Pres. Obama relied on Treasury secretary Tim Geithner. He delivered his version of housing market hell.