JACKSON, Wyo., Aug. 31, 2007
Fed Chair Pledges Help In Credit Crunch
Ben Bernanke Says Central Bank Will "Act As Needed" To Cushion Economy, But Is Mum On Specifics
-
Federal Reserve Board Chairman Ben Bernanke says the central bank will "act as needed" to keep the credit crisis that has unhinged Wall Street from hurting the national economy. (AP Photo/Pablo Martinez Monsivais)
-
Interactive Eye On The Economy In-depth features on U.S. markets, taxes, employment and the Federal Reserve.
-
Section Real Estate Buying, selling, or just trying to stay afloat? Get the latest on the housing market.
In anxiously-awaited remarks, Bernanke did not specify what the Fed's next move will be but made clear policymakers are keeping close tabs on the problem, which has roiled investors in the United States and around the globe.
Even as Bernanke vowed Fed action, he sought to temper investors' expectations.
"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," Bernanke said. "But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy."
President Bush, meanwhile, said the economy was strong enough to deal with turbulence on Wall Street. Mr. Bush, speaking in the Rose Garden, said he was briefed on the financial markets by Treasury Secretary Henry Paulson.
"The markets are in a period of transition as participants reassess and reprice risk," the president said in a rare comment about Wall Street. "This process has been unfolding for some time and it's going to take more time to fully play out. As it does, America's overall economy will remain strong enough to weather any turbulence."
Many believe the odds are growing that the Fed will cut its most important interest rate, now at 5.25 percent, by at least one-quarter percentage point on or before Sept. 18, its next regularly scheduled meeting. The Fed hasn't lowered this rate in four years.
The Fed "will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets," Bernanke told an economics conference here.
To guide the Fed in terms of what its next move will be, Bernanke said policymakers will pay especially close attention to the "timeliest indicators" as well as information gleaned from businesses and banks around the country. Economic data that was taken before the credit markets really seized up in August will be much less useful to policymakers to assess the country's economic health, he explained.
It was his first speech - and his most extensive comments - since the credit crunch took a turn for the worst earlier this month August. The carnage in credit markets and the turmoil on Wall Street pose the biggest test of Bernanke's skills since taking the Fed helm 19 months ago.
Mr. Bush was announcing steps Friday to aide homeowners who are having trouble making the payments on risky mortgages.
The Fed's most important interest rate, called the federal funds rate, has been at 5.25 percent for more than a year. Any reduction to this rate would mean lower interest rates for millions of people and businesses. That's why it is the Fed's main tool for influencing economic activity.
After listening to Bernanke's speech, John Makin, principal at Caxton Associates Inc., believed the Fed was moving "a tiny bit closer" to a rate cut.
In his remarks to a high-profile conference here on housing sponsored by the Federal Reserve Bank of Kansas City, Bernanke discussed some of the steps the Fed has taken so far to deal with the credit crunch.
While problems were triggered largely by heightened concerns about higher-risk "subprime" mortgages made to people with blemished credit histories or low incomes, Bernanke said "global financial losses have far exceeded even the most pessimistic projections of credit losses on those loans."
To stabilize wobbly markets, the Fed on Aug. 17 sliced its lending rate to banks by a half percentage point to 5.75 percent. It also has pumped billions of dollars into the financial system to help banks and other institutions get through the credit hump and carry out their business.
The Fed's main concern, however, is the extent to which these problems might short-circuit economic growth.
"The further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected, with possible adverse effect on consumer spending and the economy more generally," Bernanke said.
The fear is that if credit continues to become harder for people and businesses to get, spending and investment will be crimped. That could hurt overall economic growth. In a worst-case scenario, the country could slide into a recession. Credit is the economy's life blood. It allows people to finance big-ticket purchases such as homes and cars and can help businesses bankroll expansions and other things that can boost hiring.
After a five-year boom, the housing market slowed last year; problems are expected to persist well into next year as builders try to reduce a glut of unsold homes.
During the housing slump, a combination of higher interest rates and weaker home values clobbered homeowners, especially those with blemished credit histories or low incomes holding higher-risk "subprime" loans.
With squeezed homeowners finding it difficult to make their mortgage payments or pay them in a timely fashion, foreclosures and delinquencies are soaring and are expected to get worse. Lenders have been forced out of business, and hedge funds and other big investors in subprime mortgage securities also have taken a big financial hit.
Very low initial "teaser" rates jumping to much higher rates as they reset are socking some homeowners. Analysts estimate 2 million adjustable-rate mortgages will reset this year and next. Steep prepayment penalties have made it difficult for some to get out of their mortgages. Some overstretched homeowners can't afford to refinance or even sell their homes.
Most of the carnage has been in the subprime market, but problems have spread to other more creditworthy borrowers. That has sent investors into periods of panic in recent weeks, causing stocks on Wall Street to careen wildly.
© MMVII The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.
Michelle Obama tells how her role as the First Lady has changed her perspective.
2002 was a lot worse than they let on and because of 9/11 they did not want to compound the problems with an economic slump, so the Fed dropped rates way down. That was not so bad, but they kept them there way too long and we ended up with easy money on poor credit. This could have and I believe was fore seen. The Fed is suppose to be independent of politics, but sometimes it may be willing to make things look better than what they really are for political gain before elections.
Keep the peasants in debt, makes them more tractable.
And thank you Repugniscum Congress for passing that new bankruptcy bill--it just doesnt do to have lowlifes writing off their debts just to feed their kids--what''s important is that Bushit''s Billionaires get paid first!
STOP THE GAME BAZTARDZ NAZIS ....
WWW.ZEITGEISTMOVIE.COM
WWW.MONEYASDEBT.COM
THERE''LL BE A REVOLUTION AGAINST THIS CRIMINALS
THIS FRAUD AGAINST ALL THE WORLD CAN''T GO LONG FOREVER THE QUESTION IS WHEN .?
WWW.ZEITGEISTMOVIE.COM
I have a better idea, base the new currency on cocaine, a substance which is not only ten times more costly than gold per gram, but is perishable, and supplies must be renewed, thus the opportunity to print more money.
Why not, the coke cartels already mint their own money.
Hmm, I''m no expert, but from what I''ve been reading the problems were triggered largely by hedge funds that had invested in companies doing those subprime mortages - in other words the really, REALLY rich guys are freaking out because their hedge funds dropped from 1/3 to almost 1/2 their value, so the fund managers scramble to sell off shares to shore up the funds, so the market drops, and the little guys freak and sell off too.
Maybe someone else can comment better on the connection between the hedge funds meltdown and the subprime mortgage meltdown?
The Fed controls our Country. It''s a PRIVATE BANK owned by The Elite.
WAR WAR WAR. A hundred years of WAR. So the Elite could make a dollar.
ZEITGEISTmovie.com.
The Federal Reserve reported that the daily borrowing averaged $1.315 billion for the week ending Wednesday."
Hope the bankers, who are taking about $10 billion from us each week, send us a nice thank-you note. Or some flowers. Least they can do. What''s that, they decided instead to send another 100,000 jobs to China to "reward" us? Thanks, bankers. Thanks, you guys are good citizens. No problem giving you each $10 billion a week to make your fraudulent, bad investments carry for another few years. We love to be abused, WE''RE AMERICANS. WE''RE DUMB. ABUSE US PLEASE.
- by walt1944-2009 August 31, 2007 5:28 PM EDT
- The Federal Reserve announced it would act "as needed" to ease the credit fiasco created by mortgage companies and money lenders. One solution is for the Fed to convince Emperor Bush to have the central bank print more money, therefore creating a better "paper" financial environment to save the economy. Naturally, neither the Fed nor the Emperor are concerned with the resulting inflation that a devalued currency would cause, but both feel it would be irrelevant, since their investments are in Euroes.
- Reply to this comment
See all 14 CommentsThe other solution is to use a different form of currency altogether, backed, perhaps, by a different form of precious metal, perhaps COPPER, or some other basis altogether, perhaps OIL! The new currency would be printed in 1,5,and 10, denominations and would have a smiling face of the Emperor on one side, and an extended middle finger on the other!
SIG HEIL, BUSH!!!