Busted: Bankers and The Global Economy

March 5, 2008

The Fed: Helping Distressed Borrowers

On March 4, the affable Fed Chairman, Ben Bernanke spoke to a large group. As usual, what he wanted to say wasn’t as important as what he said along the way. For the first time publicly, he admitted that “mortgage delinquencies began to rise in mid-2005”. This is news coming from conservative Bernanke. It has taken a pounding to get government officials or the Fed to admit to any downturn up until December of 2007. Today, the Fed is facing the music with the banking and mortgage crisis and now has the power to buy and sell securities to protect the economy with the full authority and power of the federal government. With all that heady power, the beginnings of the banking and mortgage crisis can be polite conversation at Fed speeches.

Weak underwriting might not have produced widespread payment problems had house prices continued to rise at the rapid pace seen earlier in the decade.” Bernanke is ignoring the fact the lax lending practices and the inability of borrowers to pay is what created the entire situation, including the markets ability to sustain rising prices. He ignores the banking practices including the honesty of borrowers. Everyone wanted something for nothing. Renters wanted their piece of the “American Dream”. Clearly, the Federal Reserve does not try to hold moral or ethical territory.

fed-numbers.jpgBorrowers are hampered not only by their lack of equity but also by the tighter credit conditions in mortgage markets.” Refinancing is not an option. However, the reality is that refinancing was never the answer. The whole idea of continually refinancing loans to make housing affordable and to artificially sustain and enhance housing pricing is a classic idea of false economy as well as predatory business that could never be sustained indefinitely. Bernanke calls for a vigorous response now. He cleverly calls for care in designing solutions stressing prudence consistent with the soundness of the lender. “Concerns about fairness and the need to minimize moral hazard add to the complexity…” Bernanke, bankers and the administration need a reality check in a big way. Fairness and moral hazard were breached long ago. Encouraging prudent behavior now is like encouraging a late-term pregnant woman to practice birth control. The fruit of the act is already in place and the end result of that act is ready for birth. Clearly, Bernanke and others in the Federal Reserve know this, but are not going to pass moral judgment on anyone. In fact, if you consider that the Federal Reserve receives $406 billion a year on interest-only payments from the U.S. government, you know that the Fed has no moral compass outside of money. There will be no moralizing today, thank you. They are here to clean up the mess and profit from it in any way possible. Using “Hope Now Alliance” standards makes the clean up sound very nice indeed. It’s all about hope now.

E. Manning

“The budget should be balanced; the treasury should be refilled; public debt should be reduced; and the arrogance of public officials should be controlled.” -Cicero. 106-43 B.C.

Each year since 1969, Congress has spent more money than income. The Treasury Department must borrow money to meet the appropriations of Congress. The total borrowed is $9.3 trillion and counting. Even when government officials claim to have a surplus, they still spend more than they receive. The U.S. government using the American taxpayer pays for interest on the debt.

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