In an interview with New York Magazine, Barney Frank, former chairman of the House Financial Services Committee, revealed that during the presidential transition from former President Bush to Obama, Obama rejected a Bush administration concession to write down mortgages. According to Mr. Frank:
The mortgage crisis was worsened this past time because critical decisions were made during the transition between Bush and Obama. We voted the TARP out. The TARP was basically being administered by Hank Paulson as the last man home in a lame duck, and I was disappointed. I tried to get them to use the TARP to put some leverage on the banks to do more about mortgages, and Paulson at first resisted that, he just wanted to get the money out. And after he got the first chunk of money out, he would have had to ask for a second chunk, he said, all right, I’ll tell you what, I’ll ask for that second chunk and I’ll use some of that as leverage on mortgages, but I’m not going to do that unless Obama asks for it. This is now December, so we tried to get the Obama people to ask him and they wouldn’t do it.
There were policy debates within Obama’s economic team about how to handle the mortgage crisis. The two choices were to either create a way to write down mortgage debt or to allow the write-down of mortgage debt through massive amounts of foreclosures over the next four to six years. Obama chose the latter, which caused roughly $7 trillion in middle class wealth to vanish and financial assets for the elites to re-inflate like never before.