The following appeared on page 2C of the Tuesday May 6, 2008 issue of the St. Paul Pioneer Press.
[My comments: Congress intervening in the market is exactly what GOT us into this mess in the first place. Congress mandated that certain demographic groups get loans regardless of their ability to pay. Mortgage lenders, meanwhile, loosened their standards to comply with the law. Now look at us! This Congressional/governmental intrusion into the private market has to stop.]
Bernanke: Congress must act to end mortgage crisis
A rising tide of late mortgage payments and home foreclosures poses considerable dangers to the national economy, Federal Reserve Chairman Ben Bernanke warned anew Monday as he urged Congress to take additional steps to alleviate the problems.
"High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets and the broader economy," Bernanke said in a dinner speech to Columbia Business School in New York. "Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest," he said.
Some 1.5 million U.S. homes entered into the foreclosure process last year, up 53 percent from 2006, Bernanke said. The rate of new foreclosures looks likely to be even higher this year, he said.
To provide more relief, Bernanke again called on Congress to give the Federal Housing Administration, which insures mortgages, more flexibility to help distressed borrowers at risk of losing their homes.
Showing posts with label Bernanke. Show all posts
Showing posts with label Bernanke. Show all posts
Tuesday, May 6, 2008
Wednesday, April 30, 2008
AP: Fed cuts rates as economy slumps, hoping to stop recession
The following AP story appeared on Yahoo Finance at 7:41 p.m. on Wednesday April 30, 2008
By JEANNINE AVERSA, AP Economics Writer
WASHINGTON - Scrambling to shore up the faltering economy, the Federal Reserve cut interest rates to the lowest point in nearly four years Wednesday as the nation teetered on the edge of recession.
Wall Street rallied at first but then pulled back, concerned that the reduction might be the last for a while.
In fact, the Fed's trim was smaller than those of recent months amid indications the central bank might pause to see if months of powerful rate-cutting medicine and billions of dollars in stimulus checks will be enough to lift the country out of its slump.
Chairman Ben Bernanke led a divided Fed, in an 8-2 vote, in slicing its key rate by one-quarter percentage point to 2 percent.
In turn, the prime lending rate for millions of consumers and businesses fell by a corresponding amount, to 5 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans. Both rates are the lowest since late 2004.
The Federal Reserve, which has been dropping rates since last September, turned much more forceful early this year when housing, credit and financial problems worsened. Rate reductions in January and March alone marked the most aggressive intervention in a quarter-century in an effort to re-energize consumers and businesses.
"The substantial easing of monetary policy to date ... should help to promote moderate growth over time and to mitigate risks to economic activity," the Fed said, strongly hinting that more cuts may not be needed.
Enthusiastic Wall Street investors drove the Dow Jones industrial average up more than 178 points — lifting it above 13,000 for the first time since early January — right after the Fed action. Then traders' caution returned, and the index ended the day 11.81 points below where it started.
Although the Fed didn't take another reduction off the table, a growing number of economists believe the central bank is winding down its rate-cutting campaign. Barring another hit to economic growth, they believe rates probably will stay where they are — perhaps through the rest of this year — in part because the Federal Reserve is concerned that further cuts could join with galloping energy and food prices and spread inflation dangerously higher.
By all accounts, the country's economic health is fragile.
The economy crawled ahead at a pace of just 0.6 percent from January through March as housing and credit problems forced people and businesses to hunker down, the Commerce Department reported hours before the Fed's action. Growth had been just as feeble in the prior quarter.
Job losses for the first three months of the year neared the staggering quarter-million mark, and a government report on Friday is expected to show that employers shed jobs again in April. The unemployment rate, now at 5.1 percent, also could creep higher in April and hit 6 percent early next year, analysts say.
"Recent information indicates that economic activity remains weak," the Fed said. "Household and business spending has been subdued, and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters."
Two members — Charles Plosser, president of the Federal Reserve Bank of Philadelphia, and Richard Fisher, president of the Federal Reserve Bank of Dallas — opposed cutting rates Wednesday, a crack in the usually unified front the Fed often shows the public.
Both men have a reputation for being especially vigilant about fighting inflation. At the Fed's previous meeting in March, they opposed cutting rates by a whopping three-quarters point and preferred a smaller reduction.
"The Fed didn't completely shut the door on rate cuts but they closed it part way," said Mark Zandi, chief economist at Moody's Economy.com. "I think the overall message was they've done a lot already to help the economy and think this will be enough. But they stand ready to do more if that is needed."
Bernanke's juggling act is getting harder. Fed policymakers are trying to bolster economic growth, and at the same time they are mindful that they can't let inflation get out of hand. The very rate reductions the Fed depends on to energize the economy can also sow the seeds of inflation down the road.
At the same time, many economists believe the economy already is declining.
Under one rough rule, if the economy contracts for six straight months it is considered to be in recession. However, that didn't happen in the last recession — in 2001. A panel of experts at the National Bureau of Economic Research that determines when U.S. recessions begin and end uses a broader definition, taking into account income, employment and other barometers. The bureau's finding is usually made well after the fact.
The Fed's previous rate reductions, which take months to work their way through the economy, should help lift growth in the second half of this year. The government's $168 billion economic-stimulus package — including tax rebates that started flowing to bank accounts on Monday — also should help energize activity, the Bush administration, Bernanke and private economists have said.
The biggest weight on the economy is the housing crisis, which has pushed foreclosures to record highs and caused financial institutions to rack up billions of dollars in losses.
For mortgage rates, the Fed's latest cut probably won't have much, if any, impact.
Rates on longer-term 30-year and 15-year mortgages, which are linked to the 10-year Treasury notes, actually could see rates rise in the weeks ahead in part because of concerns about higher inflation. Rates on shorter-term mortgages probably won't drop either because investors already had factored in the latest Federal Reserve action.
Still, people with adjustable-rate home loans have been helped by the Fed's series of rate reductions; they would have been socked with much higher rates when their mortgages reset if not for the Federal Reserve cuts, analysts said. "Going forward, if the Fed holds rate steady, resets in the pipeline would benefit in a similar fashion as still-low interest rates would mean very manageable mortgage-rate resets," said Greg McBride, senior financial analyst at Bankrate.com.
By JEANNINE AVERSA, AP Economics Writer
WASHINGTON - Scrambling to shore up the faltering economy, the Federal Reserve cut interest rates to the lowest point in nearly four years Wednesday as the nation teetered on the edge of recession.
Wall Street rallied at first but then pulled back, concerned that the reduction might be the last for a while.
In fact, the Fed's trim was smaller than those of recent months amid indications the central bank might pause to see if months of powerful rate-cutting medicine and billions of dollars in stimulus checks will be enough to lift the country out of its slump.
Chairman Ben Bernanke led a divided Fed, in an 8-2 vote, in slicing its key rate by one-quarter percentage point to 2 percent.
In turn, the prime lending rate for millions of consumers and businesses fell by a corresponding amount, to 5 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans. Both rates are the lowest since late 2004.
The Federal Reserve, which has been dropping rates since last September, turned much more forceful early this year when housing, credit and financial problems worsened. Rate reductions in January and March alone marked the most aggressive intervention in a quarter-century in an effort to re-energize consumers and businesses.
"The substantial easing of monetary policy to date ... should help to promote moderate growth over time and to mitigate risks to economic activity," the Fed said, strongly hinting that more cuts may not be needed.
Enthusiastic Wall Street investors drove the Dow Jones industrial average up more than 178 points — lifting it above 13,000 for the first time since early January — right after the Fed action. Then traders' caution returned, and the index ended the day 11.81 points below where it started.
Although the Fed didn't take another reduction off the table, a growing number of economists believe the central bank is winding down its rate-cutting campaign. Barring another hit to economic growth, they believe rates probably will stay where they are — perhaps through the rest of this year — in part because the Federal Reserve is concerned that further cuts could join with galloping energy and food prices and spread inflation dangerously higher.
By all accounts, the country's economic health is fragile.
The economy crawled ahead at a pace of just 0.6 percent from January through March as housing and credit problems forced people and businesses to hunker down, the Commerce Department reported hours before the Fed's action. Growth had been just as feeble in the prior quarter.
Job losses for the first three months of the year neared the staggering quarter-million mark, and a government report on Friday is expected to show that employers shed jobs again in April. The unemployment rate, now at 5.1 percent, also could creep higher in April and hit 6 percent early next year, analysts say.
"Recent information indicates that economic activity remains weak," the Fed said. "Household and business spending has been subdued, and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters."
Two members — Charles Plosser, president of the Federal Reserve Bank of Philadelphia, and Richard Fisher, president of the Federal Reserve Bank of Dallas — opposed cutting rates Wednesday, a crack in the usually unified front the Fed often shows the public.
Both men have a reputation for being especially vigilant about fighting inflation. At the Fed's previous meeting in March, they opposed cutting rates by a whopping three-quarters point and preferred a smaller reduction.
"The Fed didn't completely shut the door on rate cuts but they closed it part way," said Mark Zandi, chief economist at Moody's Economy.com. "I think the overall message was they've done a lot already to help the economy and think this will be enough. But they stand ready to do more if that is needed."
Bernanke's juggling act is getting harder. Fed policymakers are trying to bolster economic growth, and at the same time they are mindful that they can't let inflation get out of hand. The very rate reductions the Fed depends on to energize the economy can also sow the seeds of inflation down the road.
At the same time, many economists believe the economy already is declining.
Under one rough rule, if the economy contracts for six straight months it is considered to be in recession. However, that didn't happen in the last recession — in 2001. A panel of experts at the National Bureau of Economic Research that determines when U.S. recessions begin and end uses a broader definition, taking into account income, employment and other barometers. The bureau's finding is usually made well after the fact.
The Fed's previous rate reductions, which take months to work their way through the economy, should help lift growth in the second half of this year. The government's $168 billion economic-stimulus package — including tax rebates that started flowing to bank accounts on Monday — also should help energize activity, the Bush administration, Bernanke and private economists have said.
The biggest weight on the economy is the housing crisis, which has pushed foreclosures to record highs and caused financial institutions to rack up billions of dollars in losses.
For mortgage rates, the Fed's latest cut probably won't have much, if any, impact.
Rates on longer-term 30-year and 15-year mortgages, which are linked to the 10-year Treasury notes, actually could see rates rise in the weeks ahead in part because of concerns about higher inflation. Rates on shorter-term mortgages probably won't drop either because investors already had factored in the latest Federal Reserve action.
Still, people with adjustable-rate home loans have been helped by the Fed's series of rate reductions; they would have been socked with much higher rates when their mortgages reset if not for the Federal Reserve cuts, analysts said. "Going forward, if the Fed holds rate steady, resets in the pipeline would benefit in a similar fashion as still-low interest rates would mean very manageable mortgage-rate resets," said Greg McBride, senior financial analyst at Bankrate.com.
Tuesday, February 26, 2008
Bernanke Revisits 'Financial Accelerator'
Wall Street Journal
Monday January 28, 2008 Pg A2
Fed Chairman Ben Bernanke's urgency in addressing the risk of recession can be traced in part to the insights from his research on the financial system and the Great Depression. In June, Mr. Bernanke delivered a speech on the "financial accelerator," which describes how weakness in the financial system an compound an economic downturn. He developed the theory in the 1980s to explain the depth and duration of the Great Depression, and later expanded on it in collaboration with Mark Gertler of New York University.
Rereading that speech helps explain last week's 0.75-percentage-point rate cut, a likely cut this week, and Mr. Bernanke's advocacy of a fiscal stimulus. Fed commentary these days contains a lot of references to "feedback loops" and self-reinforcing spirals of declining confidence and asset prices. Those are the hallmark of the financial accelerator in action. They give the current economic cycle a different cast from the typical post-World War II cycle, which was driven largely by trends in inventories, employment and - in 2001 - capital investment.
"Economic or financial news has the potential to increase financial strains and lead to further constraints on the supply of credit to households and businesses," Mr. Bernanke observed in a speech Jan. 10. Note the reference to "news": it's not just economic and financial developments, but how market confidence is affected by news of those developments, that can aggravate the downward spiral. Taht may explain why just the threat of a steep stock decline last Tuesday played a part in Mr. Bernanke's decision to cut rates: allowing the drop to play out may have had confidencedamaging consequences beond the lost stock-market wealth.
- Greg Ip
Monday January 28, 2008 Pg A2
Fed Chairman Ben Bernanke's urgency in addressing the risk of recession can be traced in part to the insights from his research on the financial system and the Great Depression. In June, Mr. Bernanke delivered a speech on the "financial accelerator," which describes how weakness in the financial system an compound an economic downturn. He developed the theory in the 1980s to explain the depth and duration of the Great Depression, and later expanded on it in collaboration with Mark Gertler of New York University.
Rereading that speech helps explain last week's 0.75-percentage-point rate cut, a likely cut this week, and Mr. Bernanke's advocacy of a fiscal stimulus. Fed commentary these days contains a lot of references to "feedback loops" and self-reinforcing spirals of declining confidence and asset prices. Those are the hallmark of the financial accelerator in action. They give the current economic cycle a different cast from the typical post-World War II cycle, which was driven largely by trends in inventories, employment and - in 2001 - capital investment.
"Economic or financial news has the potential to increase financial strains and lead to further constraints on the supply of credit to households and businesses," Mr. Bernanke observed in a speech Jan. 10. Note the reference to "news": it's not just economic and financial developments, but how market confidence is affected by news of those developments, that can aggravate the downward spiral. Taht may explain why just the threat of a steep stock decline last Tuesday played a part in Mr. Bernanke's decision to cut rates: allowing the drop to play out may have had confidencedamaging consequences beond the lost stock-market wealth.
- Greg Ip
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