Subprime Mortgage Lenders Get More Help From the Fed
Banks that have found themselves in trouble due to shoddy lending practices and subprime mortgage lenders are getting a little more help from the Fed. The latest is a $200 billion plan designed to offer better rates to financial institutions that find themselves in tough spots. The Wall Street economic blog offers this, from a statement issued by the Federal Reserve this morning:
Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS.
The statement goes on to say that this entire setup is meant to “promote liquidity in the financing markets.” Additionally, the Fed hopes that this $200 billion plan will instill “confidence” in the stock market and in the economy. The idea is to help people feel better about the way things are going. People who feel better about the way things are going are more likely to spend money. And that is supposed to stimulate the economy further.
Unfortunately, like so many other moves precipitated by the government at this time, the latest Fed $200 billion plan doesn’t actually address the fundamental practices that resulted in this mess in the first place.
I’m not sure we need this constant economic stimulus anyway. What happened to accepting the natural economic cycle? The natural real estate market cycle? We have become so dependent on things always growing, growing, growing that we have forgotten that economies are usually cyclical. Unfortunately, our current economy is based so much on debt that a down cycle is disproportionately devastating when all those debts are called in.
Tags: subprime mortgage lenders, Fed $200 billion plan, home mortgage loan, mortgage loan blog,
debt based economy, economic cycle, confidence market
March 12th, 2008 at 10:58 am
[…] big story yesterday was the latest effort by the federales to fix the economy. A $200 billion Fed plan to lend money to home mortgage lenders and other financial institutions was announced. The plan was […]