Talk about closing the barn door after the horses got loose. The Fed last week proposed rules to better protect banks and borrowers in regard to mortgages.
“Our goal is to promote responsible mortgage lending for the benefit of individual consumers and the economy,” Federal Reserve Chairman Ben S. Bernanke said in a statement. “We want consumers to make decisions about home mortgage options confidently, with assurance that unscrupulous home mortgage practices will not be tolerated.”
But as we have asked before on these pages, how many subprime mortgages were written up with sinister intent? The onus in untold government news releases and swallowed whole by the mainstream media are references to these shadowy “unscrupulous” lenders. Massive arrests appear to be lacking. Lack of due diligence ”“ read that as stupidity ”“ by the borrower and lender are more apt to be the cause of the problem. Greed also probably played a supporting role in some cases.
The subprime morass has become an irrepressible crack whose fingers are stretching through the economy and creating strange bedfellows for lending institutions such as Citigroup and UBS.
Before the respective stockholders could give a collective rebel yell or a subprimal scream, foreign suitors were at the door. Citigroup”™s subprime missteps landed it in the sack with the Abu Dhabi Investment Authority, which kicked in $7.5 billion.
For UBS the white knights came in the form of the Government of Singapore Investment Corporation and an undisclosed “strategic investor” in the Middle East who came bearing $11 billion.
It is interesting to note that the Fed did not act more quickly to slow the steamroller effect. On June 5, Bernanke told attendees of the 2007 International Monetary Conference in Cape Town, South Africa, “Whatever their effects on the broader economy, the problems in the subprime sector are causing real distress for many homeowners. To help mitigate the situation, the Federal Reserve and other federal supervisory agencies are encouraging the banks and thrift institutions that we supervise to work with borrowers who may be having trouble meeting their mortgage obligations, including identifying and contacting borrowers before they enter delinquency or foreclosure.”
Encouraging?
Incredulous!
The Fed should have issued an immediate Act of War, stating in no uncertain terms that there is a very huge crisis about to spiral out of control if the following immediate steps are not enacted.
Instead, last week we got Fed board of governors”™ member Randall S. Kroszner offering this bit of doublespeak: “In addition, our analysis of the data suggests that the troubles in the mortgage market generally arise not from a single practice in isolation but instead from the complex ways that risk factors and underwriting practices can affect each other. To that end, in these proposals, we have tried to keep an eye on both risk-layering and mitigating risk factors as we seek both significant improvements in disclosure along with stricter regulations.”
Please cue that subprimal scream.
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