Does Anyone Have a Real Economic Plan?

The housing bust, then, isn't just a setback. It's a traumatic change in psychology. The candidates glance over this, at best. Bachman said the problem is that Obama is "making home ownership impossible for many Americans." Romney says that the goal is "getting this economy growing again, so that we can have rising housing prices again." Only Pawlenty was brave enough to say that "the market is going to have to adjust," again echoing Paul. But Pawlenty followed up only with a vague prescription that "the best thing that we can do is get the economy moving again."

This is circular reasoning. The economy won't "move" until federal elected officials and regulators honestly and competently address this debt overhang. On the commercial real-estate side, in many cases, lenders have taken the hit on their bad investments, writing down the amount owed when a building simply isn't worth what people thought it was worth five years ago. On the single-family side, that's not happening. Foreclosures drag on for years. People who aren't in foreclosure half-heartedly make their bubble-era mortgage payments, with no hope of a reprieve on the amount they owe.

Why not? Well, for many reasons. Changes of ownership — the threat of which, at least, is often necessary to clear debt — are messier on the residential side than on the commercial side. Someone lives there, after all. Commercial borrowers, unlike homeowners, are often savvy financial folk or have them on their payrolls, and they know that both borrower and lender bear some responsibility for outlandish valuations when it comes to non-recourse lending.

And there's the moral issue, too: Many Americans view renegotiating their outstanding debt not as a straightforward business strategy, but as evidence of a character defect and a personal failure — you made your bed, you lie in it, even at the cost of your own future and the nation's as people throw money toward the bubble of the past rather than toward investments of the future.

It would take a courageous candidate to embrace this problem — and to offer some solutions. A Republican with financial experience — say Romney — should say that a principle of business is to cut your losses. Regular people, just like businesspeople, make mistakes. They should learn from them and move on, not be shackled by them through decades of painful deleveraging and low growth.

To that end, banks and other mortgage servicers should have to complete foreclosures quickly; if they can't do so because the process is too complicated, they should write down the principal amount owed to end the uncertainty. Forcing quick foreclosures would start a cascade; other homeowners, too, would default. Only then would the equation change for banks and servicers. Proactive principal writedowns of people who weren't in default would then mitigate losses, not exacerbate them, because such actions would keep more people from abandoning properties. What's more, cutting mortgage losses sends a smart market signal: The only thing that will keep lenders from lending too much in the future is the real possibility that they won't be repaid.

One big hindrance to speaking out on this topic, though, is the fragility of the financial system. Candidates who have done a little research know that more mortgage write-downs would mean more financial-industry instability and panic. And though the presidential field to date has unanimously settled its position on bank bailouts — they're against — nobody wants to talk about Wall Street except as a historical curiosity of 2008. A new panic, after all, would remind voters that we really haven't ended too-big-to-fail. It would remind them, too, that Republicans have been less than upfront about how allowing financial firms to fail means doing things like forcing big banks to hold hefty capital against, say, lucrative derivatives, something that Congressional Republicans have fought. Most important, it forces business-friendly politicians to admit that not all rules and regulations are bad. Some rules, like limits on financial-industry debt, are necessary, in fact, to allow the free market to work in allowing bad firms to fail without endangering the rest of the economy.

It's a pity — because the housing hangover that dare not speak its name is President Obama's real weakness. The president, really, is king of "extend and pretend." His 2009 home buyers' tax credit drafted taxpayer money into propping up house prices —when prices really needed to go down. His policy toward home modifications has encouraged lenders to tack on past-due mortgage payments, plus fees, to already bloated loans, and offer a few more years' worth of "teaser" interest rates.

But the president's would-be successors seem willing to overlook his biggest mistake — and it may hurt them. It's going to be hard for a candidate who goes on about the business tax rate to connect with people at a time when voters feel trapped in houses made of debt.

This disconnect hurts Obama, too, of course. But that's another strange thing about this election: Nearly three years into Obama's term, 47 percent of poll respondents blame former President Bush for today's economic woes, according to the Journal / NBC poll, against the 34 percent who blame Obama. This response, too, speaks to the trauma that people felt starting in 2008 — and are quietly still feeling, even if Washington and those who'd like to live there have moved on.

If voters want a president who willfully ignores housing reality, they may stick with the guy they have already.