But Georgie isn't alone. When Greenspan left the Fed, you'd think that the policies he'd implemented would have been scrutinized prior to their continued use. Apparently Bernanke isn't so much an analyst, more like he's a puppet on a Greenspan string with his statements this morning:
The adjustable-rate subprime mortgages originated in late 2005 and in 2006 have performed the worst, in part because of slippage in underwriting standards, reflected for example in high loan-to-value ratios and incomplete documentation. With many of these borrowers facing their first interest rate resets in coming quarters, and with softness in house prices expected to continue to impede refinancing, delinquencies among this class of mortgages are likely to rise further...So let's sum up these comments in plain language: ARM's are bad products, predatory even; pessimism in the global markets have led to greater than expected financial losses; the Fed should not bail out the bad product pushers and ignorant investors who bought products they didn't understand; despite housing sector crash, economic growth (and inflation) continue to rise; and surprise, surprise, when people have easy access to low-interest credit (HELOCs) they buy stuff they can't afford--and when that easy access disappears, they look for ways to not pay for what they bought.
Although this episode appears to have been triggered largely by heightened concerns about subprime mortgages, global financial losses have far exceeded even the most pessimistic projections of credit losses on those loans.
It is not the responsibility of the Federal Reserve--nor would it be appropriate--to protect lenders and investors from the consequences of their financial decisions.
The incoming data indicate that the economy continued to expand at a moderate pace into the summer, despite the sharp correction in the housing sector. However, in light of recent financial developments, economic data bearing on past months or quarters may be less useful than usual for our forecasts of economic activity and inflation.
On the other hand, the increased liquidity of home equity may lead consumer spending to respond more than in past years to changes in the values of their homes; some evidence does suggest that the correlation of consumption and house prices is higher in countries, like the United States, that have more sophisticated mortgage markets (Calza, Monacelli, and Stracca, 2007). Whether the development of home equity loans and easier mortgage refinancing has increased the magnitude of the real estate wealth effect--and if so, by how much--is a much-debated question that I will leave to another occasion.
Here's where Georgie steps in and turns the homeowner into the "victim."
Bush will direct Treasury Secretary Henry Paulson and Housing Secretary Alphonso Jackson to work on an initiative to help troubled mortgage holders get services and products they need to keep them from defaulting on their loans.On behalf of all sane, educated and aware investors out there, I'd just like to say thanks to Georgie and Benny for working so diligently to inspire confidence in our economic systems. I know, I know, we are different up here in The Best Place to Live on Earth TM.
Bush also planned to:
- Urge Congress to pass Federal Housing Administration overhaul legislation that would give the FHA more flexibility in assisting mortgage holders with subprime mortgages.
- Pledge to work with Congress to reform the tax code to help troubled borrowers rework their loans.
- Call for rigorously enforcing predatory lending laws and strengthening lending practices.
This just in: apparently sane, educated and aware investors are a minority in the marketplace as markets react favorably to Georgie and Benny's "there, there, everything is going to be OK" speeches. How does dumping money into a sinking ship plug the leak?