Yesterday: $200 Billion Fed Plan Creates Optimism. Today: Will It Work?
The big story yesterday was the latest effort by the feds 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 met with initial optimism in the financial markets. However, the few last times “economic stimulus” plans have been announced, they have been greeted with optimism. And after a while that optimism fizzles. Will the latest Fed “economic stimulus” plan meet a similar fate?
That question is the subject of an interesting American Public Media report this morning:
Like everything else that has been done so far, the worry is that this plan is nothing more than a band-aid, rather than a plan that truly addresses some of the underlying problems facing the way our economy is run.
This is how the plan is supposed to play out:
Home mortgage lenders (among others) are able to borrow money from the Fed. The trade in their bad and/or subprime mortgage loan securities for cash or Treasuries to do this. And, instead of having to pay the money back the next day, they have an entire month. Once there is increased liquidity (since instead of having securities the banks will have cash assets), banks will begin lending to each other again (they’ve all but stopped). As a bonus, individuals and small businesses that have been subjected to rather tight credit requirements will see a loosening, enabling them to borrow more money — and keep the economy going.
Measures such as this, however, do not guaranty that liquidity will increase. In fact, a similar plan not too long ago did nothing to bolster liquidity. On top of that, this plan does not address the reason we’re in this mess in the first place — shoddy lending practices and consumers eager to take advantage of easy credit.
Tags: $200 billion Fed plan, optimism financial markets, home mortgage loan, home mortgage lenders,
mortgage loan blog, economic stimulus
March 12th, 2008 at 12:04 pm
[…] Loan Officer Marketing Help wrote an interesting post today onHere’s a quick excerptThe big story yesterday was the latest effort by the feds 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 met with initial optimism in the financial markets. However, the few last times “economic stimulus†plans have been announced, […] […]
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