If Only I Could Get the Fed's Help When I'm Bad: Ann Woolner - Mercedes-Benz Forum

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If Only I Could Get the Fed's Help When I'm Bad: Ann Woolner

If Only I Could Get the Fed's Help When I'm Bad: Ann Woolner

March 28 (Bloomberg) -- Neither my housekeeper, yard guy nor hairdresser, not the banks, card companies and stores that extend me credit would go under if I suffered financial collapse.

Unfortunate as it is, I am too insignificant to turn to some government agency to bail me out if I were careless in my work. If, in hopes of greater fame and bigger paychecks, I turned a blind eye to facts and wrote salacious columns, ruining the reputations of decent citizens, I couldn't ask the government to gallop to my rescue once I got sacked, got sued and went hunting for a bankruptcy lawyer.

But then, I am not an investment bank. The economic health of the nation doesn't rest on my paying the yard guy. American Express Co.'s bottom line will look the same whether I pay my bill or not.

No, you have got to be big, real big, to get that kind of help.

Not even the once-giant energy company Enron Corp. was big enough to get help as it sank, taking chunks of the Texas economy with it. Imagine the outcry if it had gotten some sort of government bailout.

As a small investor, I suppose I should be grateful that the Federal Reserve and the U.S. Treasury have come to the rescue of Bear Stearns Cos., and hence to the rescue of the economy, and hence to the rescue of my 401(k), into which the current crisis has already eaten.

Thanks, guys.

At the same time, I am furious. I am furious that the banks were so reckless for so long, signing up shaky mortgages, bundling them into neat packages and selling them with spare warning of the risk. How could they not have known that the housing bubble they were so enthusiastically inflating was bound to burst, to devastating effect?

Without Notice

Regulators, few as they are over this industry, didn't seem to notice. Wall Street kept complaining about what little regulation it had to suffer. And all the while bankers pulled in hundreds of millions of dollars in compensation for the splendid job they were doing.

So now, my housekeeper, my yard guy, my hairdresser and I might wind up chipping in if the Fed has to make good on its $29 billion pledge to back shaky Bear assets that JPMorgan Chase & Co. is buying.

Yes, the Fed has the $900 billion balance sheet to cover it, if need be. But if the central bank has to dip into its own assets, its dividend to the U.S. Treasury will shrink proportionately.

It isn't as if we can expect now-chastened financial institutions to do the right thing out of some sense of responsibility. The savings and loan bailout, not even 20 years old, didn't do the trick.

No More Loans

And now, fully qualified, would-be homebuyers looking for low-interest mortgages get turned away by lenders unwilling to pass along rate cuts the Fed gave them specifically to make lending easier and revitalize the economy.

And so, the gap between the rate the banks pay and what they charge for money widens. They are gorging themselves on a historically wide spread -- 2.7 percentage points, according to Bloomberg data -- between the 10-year government bond yield and the interest rates they charge for 30-year fixed mortgages.

Well, the banks have to repair the damage their recklessness wreaked on their own books, don't they? And we want them to be more careful, right?

So many Americans are losing their homes, and far more will follow as adjustable-rate mortgages adjust skyward. Sure, some have only themselves to blame for taking out loans they couldn't afford. But plenty were victimized by predatory or usurious loans.

Empty Houses

Now, with so little lending going on, and so few people able to buy, houses stand empty, neighborhoods deteriorate and the economy keeps dragging.

And yet, the Fed keeps bestowing favors on the very industry that brought on the crisis.

Some Wall Street banks ignored reports they commissioned that alerted them to the bundling of the subbiest of the subprime mortgages without sufficient warning to investors, the New York Times reported in January.

Due diligence firms the banks hired to assess loan risk got so tired of going unheeded that ``we stopped checking,'' Jay Meadows, chief executive of a Fort Worth, Texas, firm told the Times.

No wonder New York Attorney General Andrew Cuomo, his counterpart in Connecticut, Richard Blumenthal, and the Securities and Exchange Commission are investigating whether Wall Street banks misled investors.

Government Action

Now that is the kind of government action I like to see.

I'm not as keen about the Fed decision to open its discount window to other investment banks that need help, making billions of bucks available at below-market rates. Who's next?

The speculation, denied, focuses on Lehman Brothers Holdings Inc.

``If Lehman Brothers is financially insolvent, why does the bailing out of Bear make people feel better about Lehman Brothers?'' asks George Mason University economics professor Russell Roberts.

``Where does the Fed draw the line?'' he wonders.

I don't know, except that I am certain it would draw it a very long distance from me.

Bloomberg.com: Opinion
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There is a crisis???????? Go figure?????????

Bush and Brown in push to deal with crisis

George W. Bush, US president, and Gordon Brown, UK prime minister, have agreed to step up co-operation over the crisis in financial markets. They are setting up a joint working group which will develop plans to monitor and regulate the banking system.

At the heart of the proposals, agreed on Wednesday by Hank Paulson, US Treasury secretary, and Alistair Darling, UK chancellor, is the creation of a body made up of senior Treasury and regulatory figures from London and Washington.

Mr Brown and Mr Bush will discuss greater UK-US co-operation in tackling the financial crisis when they meet at a Nato summit in Bucharest this week and a Washington summit next month.

Whitehall officials say the new UK-US working group, whose membership and terms of reference are being finalised, will seek to establish a common approach on how to respond to the crisis before next month’s meetings of the Group of Seven, the International Monetary Fund and the World Bank.

However, officials say that, given the huge role that London and New York play in financial markets, the significance of the new body will go beyond that.

“We have both been seised of the fact that we need to do something to respond to the financial market turbulence, that we need to generate a shared agenda in the run-up to the spring meetings,” said a senior UK Treasury official.

According to UK Treasury officials, the new body will examine the role of the credit ratings agencies in evaluating risk, amid concerns that they did not fully appreciate the exposure of mortgage-based products to a fall in the housing market.

It will also look at what banks and other institutions need to do to improve transparency in the valuation of complex financial products. Above all, the body will also seek to improve day-to-day co-operation between financial regulators in the US and the UK.

FT.com / World / US & Canada - Bush and Brown in push to deal with crisis
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