The Government Offers Kind Words and Bandages

When we reported on Thursday on the continuing rise in foreclosures and the downward slide in homeowner equity, we concluded that “The political pressure on the States and the federal government to take sweeping and even desparate actions will also continue to mount, especially because this is a presidential election year.”

On Friday, The New York Times echoed our assessment, saying that “The [recent foreclosure] figures are expected to increase pressure on policy makers and the mortgage industry to move faster to contain losses and help homeowners. In recent days, regulators and lawmakers have begun suggesting that the federal government might need to take a bigger role in the mortgage business.”

While Federal Reserve Chairman Bernanke repeated his call for lenders to voluntarily reduce the principal on delinquent loans to adjust them for the drop in home prices, far more more forceful action was propsed by the Chairman of the House Financial Services Committee, Rep. Barney Frank (D-Mass.), who will introduce legislation that would require the refinancing of hundreds of thousands of mortgages, with the F.H.A. providing new loan insurance.

Our opinion is that the most signifiant cause of the mortgage and foreclosure crisis is the underlying disarry in the credit markets. Unless and until the credit markets are better regulated and rationalized (and not necessarily by the government), all that can be hoped for is first aid, not a cure.

Of course, if you’re bleeding badly, you’re grateful even for a kind word and a bandage.

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One response to “The Government Offers Kind Words and Bandages

  1. That is all government can do since the free market is the best system ever, and the oldest.

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