Bernanke out of synch with Mortgage Market Problems

From what I gather from snooping around the internet, the Fed's injections of short-term liquidity have succeeded in preventing the equivalent of a bank run, but otherwise...zero.

At the same time, high-quality borrowers have more credit than they need. The problem is credit quality, not liquidity.

The financial world has been waiting all week for a speech just delivered by Fed Chairman Ben Bernanke. He has been noticeably silent concerning the matter of Mortgage Market Problems. And, when he does speak...not a clue.

His speech begins with three pages describing the current situation as reported by daily newspaper content. For example: "Obviously, if current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the broader economy. We are following these developments closely." Wow, why didn’t I think of that?

The Chairman might have noted the crucial elements of liquidity created than whose absence in modern structured finance have caused today's wreck. He might have noted creative solutions to the dangerous quagmire at hand are offered by ingredients such as transparency, homogeneity, underwriting, credit guarantee.

As I understand it, If every mortgage made since 2000 had been underwritten strictly within the guideline of the Street inventor/securitizer/buyer, today's problem would be undetectably smaller. Subprime loans are deadly by structure, not slipshod or fraudulent processing.

Rather than offer creative solutions to the problem, Bernanke closed with a paragraph assigning blame for bad mortgage lending: "... Most loans are securitized, and originators have little financial or reputational capital at risk. ...

"In light of recent financial developments, economic data bearing on past months or quarters may be less useful than usual for our forecasts of economic activity and inflation. Consequently, we will put particularly close attention to the timeliest indicators, as well as information gleaned from our business and banking contacts," ...???.

In other words, the Chairman doesn't have a solution, or am I dense?

As far as blame goes for the idiotic mess real estate has put the country in, one must ask who the lenders were allegedly controlled by as the perfect wave grew. Consumers wanted more than they could afford at any cost, and lenders created bizarre loans to accommodate them...for a profit. And no one was watching the store?

On a positive note, President Bush is making it possible to renegotiate loans at lower fixed rates.

The South Bay:
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