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Paul Kiesel
Paul Kiesel
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Bush and Bernanke View Economy, Housing Crisis Differently

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President Bush and Fed Chairman Ben Bernanke both spoke today on the economy and the continued difficulties financial markets are facing.

At a White House press conference, Bush told lawmakers (Congress) that they needed to quickly help Fannie Mae and Freddie Mac, however, immediately after conceding that both mortgage giants were in a troubled financial state, Bush went on to say that the nation’s financial system is “basically sound.”

Bernanke was very pessimistic on his view of the economy. Bernanke told the Senate Banking Committee this morning that, “The economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labor market, and rising prices of oil, food, and some other commodities.”

Bush’s take on those same “difficulties” was told to reporters like this, “I understand there’s a lot of nervousness [. . .] The economy is growing. Productivity is high. Trade’s up. People are working — it’s not as good as we’d like. And to the extent that we’ll find weakness, we’ll move.”

Bush’s exchange with White House reporters flipped back and forth from the health of the overall economy to the mortgage crisis to oil — the latter, unfortunately, became a selling point for why Congress should lift a ban on offshore oil drilling, even though Bush himself said that “I readily concede it won’t produce a barrel of oil tomorrow [. . .]” (MSNBC.com, 7/15/08).

What doesn’t make sense is why this effort, this sense of urgency by Bush and Bernanke, didn’t take place months ago. Bernanke even admitted that IndyMac’s failure was inevitable due to it being “weighed down with low-quality mortgages.” Was Bernanke not aware of these types of loans that had been flooded throughout the housing market in the prior two years?And was he not aware that these same low-quality mortgages that were littered with TILA violations and little-to-zero documentation required by the lender (i.e. Alt-A loans) were not going to precipitate a mortgage crisis as we’ve seen take place? Bernanke knew what was going on and he had been told by several experts that this “slow growth” or the “beginnings of a recession” were going to occur.

The writing had been on the wall for months per the mortgage mess, but the White House and Fed have chosen to largely ignore the problems, except when a major financial institution (Bear Stearns, Fannie, Freddie, etc.) is in jeopardy of insolvency; borrowers, however, are still left in a precarious situation.

In March, analysts predicted that we’d get to this point, that Fannie and Freddie would need a bailout and/or intervention this summer and that the mortgage/housing crisis would get much worse before it got better. More borrowers are continuing to fall behind in their payments and will soon default on their loans. The government needs to come up with a housing relief bill that represents borrowers in a fair manner, that prevents another wave of foreclosures and that also keeps lenders accountable for their reckless lending ways.