Vegas
12-07-2007, 04:46 PM
http://ibdeditorials.com/IBDArticles.aspx?id=281837363448771
As blame for the subprime mess is spread around, let's hope the Fed comes in for a share, and that it too will act aggressively to help clean it up.
As believers in free-market solutions, we have real reservations about the government's plan to stem the tide of mortgage foreclosures. We can't help thinking that in freezing rates for certain borrowers for five years, we aren't just kicking the can down the road.
On the other hand, we don't see why the majority of Americans who have been responsible in their financial dealings have to suffer for the ignorance and avarice of those who bought, sold and securitized these risky subprime loans.
In other words, we accept the administration's assurances that the focus is primarily on keeping foreclosures from tilting the economy into a recession that would hurt us all and only secondarily on helping specific groups.
We also realize that, here in the middle of the Christmas season, and heading into an election year, politicians weren't about to leave the issue unaddressed.
That said, we can't help wonder why the Federal Reserve isn't being called upon to accelerate the rate-cutting it began this fall. It was the Fed's rate-hiking, after all, that kicked off the crisis.
Note that the "troubled borrowers" now being offered the rate-freeze are those who took out adjustable-rate mortgages since Jan. 1, 2005. Now note, on the nearby chart, when the Fed started jacking up rates and the effect it had on foreclosures. How anyone can think the Fed's tightening binge didn't lead to the current crisis is beyond us. This was no nuanced "snugging" of rates; it was the most sustained and severe rate rise on record.
Granted, the rate increases started from a level that may have been left too low for too long. Still, the 17 hikes that more than quintupled the fed funds rate were more aggressive than even those used to whip stagflation in the late 1970s and early '80s.
We're not trying to absolve borrowers, lenders or investors for what turned out to be wrong decisions made in the subprime market over the past three years. But by January 2005, the Fed had already raised rates four times. What were the chances there would be a dozen more?
Fed policymakers meet again next week. Some analysts expect more easing, but others are waiting for Friday's job data to assess if a cut is needed at all.
For us, there is no choice. If the threat to the economy is as dire as the administration intimates with its foreclosure plan, the choice shouldn't be whether to cut, but how much and how fast.
http://ibdeditorials.com/images/editimg/issues120707.gif
As blame for the subprime mess is spread around, let's hope the Fed comes in for a share, and that it too will act aggressively to help clean it up.
As believers in free-market solutions, we have real reservations about the government's plan to stem the tide of mortgage foreclosures. We can't help thinking that in freezing rates for certain borrowers for five years, we aren't just kicking the can down the road.
On the other hand, we don't see why the majority of Americans who have been responsible in their financial dealings have to suffer for the ignorance and avarice of those who bought, sold and securitized these risky subprime loans.
In other words, we accept the administration's assurances that the focus is primarily on keeping foreclosures from tilting the economy into a recession that would hurt us all and only secondarily on helping specific groups.
We also realize that, here in the middle of the Christmas season, and heading into an election year, politicians weren't about to leave the issue unaddressed.
That said, we can't help wonder why the Federal Reserve isn't being called upon to accelerate the rate-cutting it began this fall. It was the Fed's rate-hiking, after all, that kicked off the crisis.
Note that the "troubled borrowers" now being offered the rate-freeze are those who took out adjustable-rate mortgages since Jan. 1, 2005. Now note, on the nearby chart, when the Fed started jacking up rates and the effect it had on foreclosures. How anyone can think the Fed's tightening binge didn't lead to the current crisis is beyond us. This was no nuanced "snugging" of rates; it was the most sustained and severe rate rise on record.
Granted, the rate increases started from a level that may have been left too low for too long. Still, the 17 hikes that more than quintupled the fed funds rate were more aggressive than even those used to whip stagflation in the late 1970s and early '80s.
We're not trying to absolve borrowers, lenders or investors for what turned out to be wrong decisions made in the subprime market over the past three years. But by January 2005, the Fed had already raised rates four times. What were the chances there would be a dozen more?
Fed policymakers meet again next week. Some analysts expect more easing, but others are waiting for Friday's job data to assess if a cut is needed at all.
For us, there is no choice. If the threat to the economy is as dire as the administration intimates with its foreclosure plan, the choice shouldn't be whether to cut, but how much and how fast.
http://ibdeditorials.com/images/editimg/issues120707.gif