Fed Chairman Ben S. Bernanke told a House Financial Services Committee hearing Thursday the Fed is "actively working" to toughen up consumer protection regulations in the subprime market. The Fed is being criticized by some members of Congress for failing to protect citizens caught in the subprime crunch. Barney Frank (D-MA), who chairs the House panel, said the Fed must use or lose its regulatory powers. "The recent problems in subprime lending have underscored the need not only for better disclosure and new rules but also for more uniform enforcement in the fragmented market structure of brokers and lenders," Bernanke said. Also testifying at the hearing was Alphonso Jackson, the secretary of housing and urban development, who said that of the 2 million subprime home loans scheduled to be reset by the end of 2008, about 500,000 would enter foreclosure. Fifteen percent of subprime loans were 90 or more days delinquent in July, triple the level of two years ago. Bernanke said measures like the granting of permission to Fannie Mae and Freddie Mac to buy bigger home mortgages to loosen liquidity in the credit markets should be "prompt" and "temporary," because after March, they will be "counter-productive." Beyond that point, interpreted Dresdner Kleinwort economist Kevin Logan, "[Bernanke] is saying, it will be way too late and won’t be necessary and may increase systemic risk." The Fed's half-point cut in the fed-funds rate this week was intended "to try to get out ahead of the situation, [to] try to forestall potential effects of tighter credit conditions," Bernanke said.
Sources: Wall Street Journal, New York Times, TimesOnline, Bloomberg, Reuters
Commentary: Bernanke Blinks - And Suffers Credibility Hit • Bernanke's Bold Move: Shades of Greenspan - WSJ • Bernanke Rips Off The Band-Aid
Stocks/ETFs to watch: DIA, SPY, AGG
Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.
