Bernanke Says Fed Will Do What’s Needed

[Bob G]

Budh and Bernanke’s comments have really depressed me. I assume that “do what’s needed”, means hyperinflation and crash of the dollar. I am f_cked. i have been waiting and saving dollars.

Bush will bail out big banks ans Wall Street buddies, and fixed income and savers will get f_cked.

Sh_t.

[SHILOH]

he said they will NOT rescue investors on Wall Street:
However, in a clear caution that policy-makers will not rescue Wall Street, Bernanke said the central bank should not shield investors from self-inflicted loss.

“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,” he said.

This was an important reference to the moral hazard policy-makers run if they insulate financial markets from errors, hence encouraging more risk-taking. However, he acknowledged the Fed had wider obligations.

“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,” he said.
(By Mark Felsenthal)
(Reuters) –

[bsrsharma]

Actually I like both their stances. What I grasp from those comments of BB – after we have a severe recession (2 back to back -ve growth), I will wakeup. Till then, watch me have fun as the drama unfolds. Perfectly sensible. He will watch the murders with detachment and come later to bury the bodies.

[SD Realtor]

My mood is particularly foul today with these announcements. I have been to two listing appointments this morning with people who are underwater. Both of them crowed about this announcement. I asked them if they have any idea if they qualify, and if they thought this was fair to those who had not bought and instead were prudent and rented.

They both said that is not their problem in the least.

The result was that both of them felt they could list their homes at higher pricing then comps suggested and that if they couldn’t make payments they thought in one way or another they would be bailed out.

I am steaming right now.

SD Realtor

[Alex_angel]

Welcome to the sh&t storm that is about to start. Now you will see more people buying trying to get in on the government love.

[kev374]

what I don’t understand is that if investors and lenders took risks and should suffer the consequences of that why not apply the same standards to individuals who were irresponsible and reckless to buy more home than they could afford, bid up prices and assume risky mortgages? Unless a homeowner was cheated in some way they are as guilty as the wall st. investors and should not be helped to keep their home.

[bsrsharma]

SD – I couldn’t understand their train of thought; if there is one. What is the “qualify” for? and what “bail out” they hope may come? If they think like that, they will be even more screwed.

[NeetaT]

The Fed will have to defend the dollar at some point by actually raising interest rates. The longer they wait the higher and faster they will have to raise rates causing the deflation that I have been waiting for for many years. China will make sure this happens.

[hipmatt]

I don’t think Bush’s proposal or Bernanke’s rate cut will do much to help out housing, instead, I believe it will do exactly as it was designed to.. to calm sellers nerves, and give them hope, whether false or not. This will boost consumer confidence a bit.

How will this affect our local RE market.. perhaps it will actually cause MORE inventory. Sellers will think that they may be able to sell their homes, and be motivated to list. IN reality, fixed rate loans won’t go down much, buyers will still be small in numbers, and few in socal will really benefit from either.. what worries me though, is how this could be a preview of an even bigger and more destructive bailout and inflationary policy in the future.

[temeculaguy]

There might be a 25 or 50 basis cut until the end of the year, easy liquidity and the conforming loans with downpayments and verfied income will be available as ever and be fairly priced at about 6%. They may throw some new wrinkles on the FHA loans to help people and the programs will look new and shiny but they won’t help anyone in California. FHA limit is 363k, who do you know is screwed because of their 363k loan in San Diego? This way they can help the poor and the middle class who just need a slightly better loan but the majority of the Californian who have leveraged themselves to the tune of a half million plus, they can’t be helped and helping them would shock most of the populous in the middle of the country anyway. I read that their ideas would help 80k homeowners total, thats about 1 in 25 that are in trouble and probably 1 in 500 that are in California.

[hipmatt]

The Writing is on the Wall

This week, Larry Kudlow and others strongly chastised Bernanke for his failure to read the writing on the wall and urged the Fed Chairman to quickly slash the Fed Funds rate. Methinks the pundits doth protest too much. For years, Kudlow, who practically coined the term “Goldilocks economy,” has dismissed with scorn suggestions that the American economy was anything less than ragingly healthy. If our economy is really so strong, why does he call so loudly for the artificial stimulus of a significant rate cut?

In truth, the writing has been clearly on the wall all along. A credit bubble has been steadily inflating for at least the last six years, which in its final frenzy produced some of the most absurd mortgage funding products the world has ever seen. To anyone not dependent on the hysteria, a no-doc, no money down, negative amortization, interest only, adjustable rate jumbo mortgage was just as clear a sign of pending catastrophe as was $200 for a share of Pets.com, or 5,000 Dutch guilders for a single tulip bulb.

The one thing all bubbles have in common is that they eventually pop, and ours just did. Unlike the popping of the last bubble in 2000-2001, this one will fall directly to our economy’s bottom line. And this time the Fed can not step up to the plate with unlimited liquidity injections.

A record percentage of our GDP is comprised of consumer spending. The source of this spending was the housing bubble. Would our savings rate really be negative were it not for housing related “wealth?” Could consumers really have spent as much as they did without the benefits of temporarily low teaser rates and the ability to extract equity from their homes? How many service sector jobs are directly related to that extra spending? When the low mortgage payments and home equity disappear, so too will the spending and jobs they engendered.

Those who feel that the economy will keep growing must believe that discretionary consumer spending is unrelated to wealth or expenses. In other words, they believe that individuals will spend as much with no home equity and $3,000 per month mortgage payments as they did with $200,000 in home equity $1,500 monthly payments. Factor in other rising expenses; such as food, energy, insurance, and taxes and discretionary spending will not just slow, it will completely collapse.

With the ugly truth laid bare, many now prod Bernanke and Bush for solutions. Unfortunately there are none. Based on absurd assumptions about real estate, we simply borrowed more money than we can ever hope to pay back. There is no magic elixir we can swallow to cure what ails us. The free market is the only force that can fix this mess. Unfortunately, the fix won’t be pretty. Prudent lending standards will return, guaranteeing that real estate prices collapse. This is an important connection that very few have made. There is no way the average American can afford to buy the average house at today’s prices with a mortgage he can afford. Assuming that the lax standards of 2005-2006 do not return, the only way this can happen is if real estate prices collapse, which is exactly what is happening.

The financial institutions that are calling most loudly for a bailout claim the Government must act to protect homeowners. However, the most severe losses will not be born by homeowners but by those who loaned them the money. Therefore any bailouts will ultimately go to lenders not borrowers. Homeowners who offered no down payment and who have no equity in their homes will in reality lose nothing in foreclosure, except perhaps a debt burden on an overpriced house. In addition, even those homeowners who made down payments likely extracted larger sums in subsequent refinancings or home equity loans. With plenty of available foreclosed homes on the market to rent it is unlikely that these former homeowners will become homeless.

As a result, the only losses for most homeowners will be psychological, as their dreams of real estate riches vanish. For some paper millionaires, the sudden realization that they are flat broke will be somewhat disheartening. Also for those who thought retirement was simply a function of living in a home and allowing it to appreciate, the sudden realization that they will now have to finance their retirement the old fashioned way, by saving up, will be quite an eye opener. However, even if misguided government bailouts enable more borrowers to keep their homes the equity they thought they had will still be gone.

In the final analysis, though it was Wall Street that served the punch, it was the Greenspan Fed that spiked it in the first place. Just as Fed policy enabled Wall Street to flood the world with worthless dot.com stocks it enabled an encore performance with subprime mortgage-backed securities. My guess is the Fed’s bubble blowing days are over. Once the inebriates sober up this time, the hangover will be so severe that no one will drink a drop of Wall Street’s punch again, meaning any more inflation the Fed creates will go strait into consumer prices.

…… by Peter Schiff

http://europac.net/#

[HereWeGo]

If you read Bernanke’s speech, it was actually quite informative. Mostly it was a historical text. He traced the events of the past month, then outlined a brief history of the mortgage industry in this country.

[SD Realtor]

BSR that is exactly the point. Their train of thought is not rational whatsoever. They do not even know what they are thinking. People in distress tend to grasp at whatever straws they can reach.

SD Realtor

[HLS]

I don’t think that the solution is that the Fed will do whatever it takes.
I think that the problem is that the Fed will do whatever it takes.

They are not looking to protect the individual. They are looking to protect the system from collapse, and ensure that the lending community gets repaid.

They will do whatever it takes to try and make sure that lenders get paid, because they don’t want the system to have to foreclose on an overpriced house that isn’t worth what the borrower owes on it.

They will do whatever they have to to keep people in debt on an overpriced house, and support the false illusion of value.

They need to do whatever it takes to protect the 3% at the bottom to keep the other 97% fooled.

[bsrsharma]

HLS – I think you are too cynical towards FED. I think FED will be lot more responsible than the government. One thing they don’t have to contend with is elections & votes. That makes things a little more rational. Secondly, they have to try very hard not to seriously upset confidence in $. Else, they will compound the problem by significant devaluation. The ice is very thin here. One major wrong move and the reserve currency status can easily collapse. The European and Asian banks have taken major hits and won’t shed a tear if $ goes the way of British Pound.

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