Wednesday, May 6, 2009


Federal Reserve is measuring the Banks for their ability to handle stress. This is a blatant and uncontrolled attempt to nationalize the banking industry. The banks that need capital are going to have to go to the government for it; converting the preferred stock to common would raise the capital (lower the debit). That means that the Govt will own more of the banking industry. That won't work. The same people responsible for the wonderful job the Departments of Education and Energy are not going to get the financial industry to work. There will be 535 CEOs in Congress with uninformed opinions of what to do. Anyone who will be hired will be a GS- 12 who is willing to work for a limited salary in another Govt job. That's just swell.

In a related matter, Congress is working to loosen lending standards. Are they total morons? Of course they are. Loose credit standards are what started all of this. The Fed report complains that Banks are tightening their lending parameters - as they should. If a down payment, a good credit history and a proven good credit history had always been requirements for a mortgage we would not be where we are now. The hope is that these are the “more difficult” parameters that Congress is complaining about..

The goal should be that financial institutions, including Fannie Mae and Freddie Mac, make loans that will be paid back. Continuing to make loans based upon people's "need" to get a loan rather than ability to repay will only mean more defaults and more bail outs.

No comments:

Post a Comment