Confidence in Federal Reserve Chairman Ben Bernanke’s performance and abilities has clearly been shaken in recent months.
Whether it was his inability to see the sheer enormity of the housing-mortgage debacle even as late as this July, or the blurting out of a proposal to temporarily increase the conforming loan limit, a limit utilized by government agencies that are tasked to promote “affordable” housing, to “$1 million” or his casual but confident dismissal of any concern related to the potential risks posed by a historically weak dollar, Bernanke has now clearly shown a pattern of ineffectiveness and poor perspective.
Add to that this following excerpt from yesterday’s meeting on proposed rule changes for the mortgage industry.
“The housing and mortgage sectors in recent years have benefited from a remarkable wave of financial innovation. The advent of large secondary markets and the use of automated underwriting [inaudible], for instance, have driven more capital to the system and in many ways have helped our mortgage markets function more efficiently. By and large, this has meant lower costs for consumers buying homes.”
Now, it’s important to understand that although this was his statement made during the opening moments of yesterday’s meeting (click here to watch and listen to his address on BNN), the transcript hosted at the Federal Reserve website reads somewhat differently.
I’ll leave the comparing and contrasting to you as an exercise but suffice it to say that the “By and large, this has meant lower costs for consumers buying homes” is NOT present.
The point here is that, although it’s hardly debatable that recent “financial innovations” have more efficiently extended far more debt to many more people than at any other time in history, given our current predicament, this fact should hardly hold any positive connotation and consumers have, in fact, NOT received the benefit of lower costs by any stretch of the imagination.
The financial innovation ushered in the worst era of dramatically inflated housing costs leaving the affordability simply for shelter at its lowest levels in history.
Now, the collapse of this era will cost the public even more as the private sector nimbly shirks its responsibilities of absorbing the full price of the risks involved in their actions leaving the taxpayer to both “mop the aftermath” as well as absorb the specific losses that will be suffered by the many millions of American families that were caught up in years of this financial distortion.