Bernanke Hints at More Fed Intervention
- Oct 05, 2011
Time for QE2.5? Speaking before the Joint Economic Committee of Congress on Tuesday, Federal Reserve Chairman Ben Bernanke said that the “[Federal Open Market] Committee will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability.” Some stimulus, in other words, as long as inflation isn’t bad, although he did not actually use the term “stimulus.”
The reason for the chairman’s comments, of course, is the unexpectedly crummy U.S. economy, though naturally central bankers don’t use such adjectives. Rather, Bernanke said that the “Committee now expects a somewhat slower pace of economic growth over coming quarters than it did at the time of the June meeting, when Committee participants most recently submitted economic forecasts.”
Bernanke urged lawmakers to go beyond the $1.5 trillion-cutting mandate of the Joint Select Committee on Deficit Reduction (the supercommittee) in dealing with budget deficits over the long run, to rewrite the tax code, and more. A term he did use during the speech was “panacea,” as in “monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy,” though it seems unlikely that anyone remotely sees action by the Fed as a cure-all. A cure-a-little, maybe, considering the cool reception that the Twist received so far.
Report says FHFA out to lunch when it came to foreclosure abuse
A new report by the Federal Housing Finance Agency Office of Inspector General has concluded that the FHFA, which is the conservator of Fannie Mae and Freddie Mac, failed to notice or investigate the budding volume foreclosure abuses in recent years, until the press got wind of the story, that is. The report, released by the FHFA-OIG on Tuesday, posits that “that there were multiple indicators of foreclosure abuse risk prior to 2010 that could have led FHFA to identify and act earlier on the issue.”
But the FHFA didn’t act on the issue—not until there was unfavorable publicity about robo-signing and other abusive practices within the mortgage industry. “Notwithstanding these indicators, FHFA did not begin to implement a risk-based supervisory plan of targeted examinations and monitoring activities associated with [the GSEs’] default-related legal services until media reports began to circulate widely in August 2010, at which time FHFA concluded that reports of improper foreclosure activities reached a critical level that supported further action.”
The FHFA, the report says, simply wasn’t up to the task of looking into mortgage abuse. “FHFA had neither an ongoing risk-based supervisory plan detailing examination and continuous supervision of default-related legal services, nor finalized examination guidance and procedures for use in performing targeted examinations and supervision of such services,” the report says. “Consequently, FHFA has limited assurance that foreclosure processing abuses will be prevented and detected through its supervisory activities.”
Investors wax optimistic for the moment
After a slog of down days recently—including most of the day on Tuesday—Wall Street had a sudden late-day rally on Tuesday and ended in positive territory. The Dow Jones Industrial Average gained 153.41 points, or 1.44 percent, while the S&P 500 was up 2.25 percent and the Nasdaq gained 2.95 percent.
Reports are that euro-zone finance ministers meeting behind closed doors have at least discussed ways to keep the Greek debt situation from blowing up. More specifically—though the information is still pretty vague—the ministers were thought to be looking at ways to recapitalize some of the continent’s banks, the better for them to withstand fallout from the sovereign debt crisis. That seemed to be enough to encourage the rally across the Atlantic.
Still, the news from Europe wasn’t entirely good. After the markets closed on Tuesday, Moody’s cut its rating on Italian debt of various kinds, much as S&P did in September. That’s the kind of thing that might spook the herd on Wednesday, driving the markets down again (and markets in Asia were already down Wednesday morning). Such are the dynamics of a yo-yo market.