Posted on 11/10/2007 6:17:24 AM PST by DeaconBenjamin
Ben Bernanke, Federal Reserve chairman, on Thursday put forward a plan to help revive the secondary market for jumbo (large denomination) mortgages that would involve Fannie Mae and Freddie Mac, as well as credit guarantees from the federal government.
Mr Bernanke told Congress he would support raising the limit on the size of the individual loans eligible for securitisation by the government-sponsored mortgage finance entities from $417,000 to $1m (€680,000, £475,000) on a temporary basis.
He suggested that Fannie and Freddie could pay insurance premiums on these loans to the federal government, which would "act as guarantor" by taking on some of the credit risk.
Charles Schumer, the Democratic chairman of the Joint Economic Committee, enthusiastically welcomed the idea and said he would try to insert it into legislation already before Congress.
The unusually specific proposal by Mr Bernanke reflects his disappointment at the continued problems in the jumbo market, and concern that this will aggravate the US housing downturn.
It came as Mr Bernanke told Congress that estimates that set the total losses from subprime mortgages at about $150bn were probably "in the ballpark".
The Fed chairman said the US central bank would not be "dogmatic" and would respond actively to new economic and market developments, while reiterating that it presently saw the risks to inflation and growth as roughly balanced.
"As we see these risks change in one direction or another we will certainly want to respond as needed to meet our mandate," he said.
The Fed chairman's remarks leave open the possibility of further rate cuts in December and January, while making it clear that the Fed does not currently expect to be making cuts again then.
Mr Bernanke emphasised that the Fed would take the action necessary to stop import and energy price inflation becoming embedded in core inflation.
However, he also made it clear that the strong growth performance of the third quarter was not "likely to be sustained in the near term".
Mr Bernanke said the Fed expected that growth would weaken in the fourth quarter and remain "sluggish during the first part of next year" before strengthening from the second quarter onwards.
However, there were two risks to growth. The first was that "financial market conditions would fail to improve or even worsen". The second was that "house prices might weaken more than expected, which could further reduce consumers' willingness to spend".
Since the meeting on October 31, he said, economic data had continued to suggest that the overall economy remained "resilient".
However, he added that "financial market volatility and strains have persisted" and new information "has intensified investors' concerns about credit market developments and the implications of the downturn in the housing market for economic growth".
In addition, further sharp increases in the price of oil had put "renewed upward pressure on inflation and may impose further restraint on economic activity", Mr Bernanke said.
Mr Schumer and Republican Senator John Sununu meanwhile expressed serious doubts about the US Treasury-backed plan to create a superfund to provide liquidity in the market for asset-backed securities.
"To be direct, I am worried that this may just be a shell game - an attempt to move bad investments around and keep them from landing on the books," Mr Schumer said.
Mr Bernanke was noncommittal, saying the plan could help the market recover but everything would depend on how it was implemented.
"To be direct, I am worried that this may just be a shell game - an attempt to move bad investments around and keep them from landing on the books,"
A first. I agree with Chuckie on something.
wow. wonder what sort of dirt he has on Bernanke?
I agree this is a great move—however—CHAIRMAN, LOWER THOSE RATES THE REMAINING 75 BASIS POINTS OR LOWER, SIR!!!
It would appear that the markets don't believe him. The fed's recent cuts show they care more about a recession and 2008 election politics than inflation. Hello 1970s?
Good grief.
The only candidate who has any credibility on this issue is Ron Paul. The rest have completely missed the boat are likely to support this kind of bail-out. I know that I can depend on Ron to not go down that road. Can the rest of you say the same? One thing is sure: Huckabee will be second to none in supporting the most expensive bail-out program which is possible.
The yield on the 3 month treasury is around 3% and has dropped almost an entire percentage point in the past month. The overnight funds rate is at 4.5%.
No. I cannot say that I depend on Ron Paul. You win. Sigh ...
Any “bail-out” will have been approved or rejected long before Paul’s campaign fades away.
Oh, yes, I really feel like supporting folks with $500,000 mortgages they can’t pay. (/s)
My suggestions: Let the buyers be foreclosed, if they can’t pay their debts. They can rent an apartment, and hopefully learn to be more reasonable in the future.
Let the lenders eat their losses, take a hit in their stock price, lay off employees, and hopefully learn to have more sense in the future.
What do I win for solving this “crisis”?
Let the homebuilders discount their inventory, eat their losses, take a hit in their stock price, and hopefully learn to be more cautious in the future.
Correction: Any first bail-out will be approved or rejected during the current administration. There will also be second, third, and fourth bail-outs (either through tax dollars or Fed creation of money out of thin air) that will be approved or rejected under the adminitration of (your candidate) should he win. The bailouts never end, that is if folks continue to support candidates who don’t have a plan to reverse course. Does you candidate have a such a plan? Has he even pretended to have a plan?
The two risks to growth mentioned by the Chairman, fiancial market turmoil and contined fall in housing prices are almost CERTAIN to occur.
This thing is far from over and the Chairman doesn't want to tip his hand to the layman. The economy is in trouble and he will foolishly continue to try to bail it out with inflationary monetary policy.
PING
So are they concerned there might be an uprising by those who where sold loans on properties that would never ever have the value of the loan? These lenders were pushing loans and they did not care whether the sticks and mortar were anywhere near the actual value of the loan they were selling.
Perhaps. Perhaps not. What he does have is a chance. Does yours?
They all have. Unfortunately, the next Pres will probably be one of them.
Economy/Credit/Housing Issues Ping List
If you want on or off this list let me know.
Just plain stupid.
LBT
......
Pretty weak gruel there. You don’t feel proud of enough to name your candidate who “perhaps” has a plan (but almost certainly doesn’t). How can such a nervous Nellie/milqetoast, as described in your profile, possibly beat Hillary? The GOP needs to run someone who knows where he stands.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.