"The Obama administration is discussing with banks a change in its foreclosure-prevention program that would encourage lenders to reduce the loan balance due in some cases," the Wall Street Journal reports in an article headlined, "White House Nudges Banks to Modify Loans."
There's no indication of how this nudging or encouraging is being done. Is there a carrot or a stick involved, or both, and what are they? It'd be nice to know. The carrot could be an offer of taxpayer money to the banks to keep homeowners in their houses that they couldn't otherwise afford. The stick could be a threat that if the banks don't do these principal modifications, the Obama administration will get back at them somehow. Richard Thaler and Cass Sunstein's book notwithstanding, when the government tries to "encourage" or "nudge" a highly regulated and already unpopular industry into doing what it wants, it has a lot of force at its disposal, enough to turn a "nudge" into a shove.