The Fed – finally – steps in

The US Federal Reserve has – finally – stepped in to put an end to the shonky lending practices that led to the US sub prime mortgage crisis.

It’s too late, of course.  Most of the operators, who caused the trouble,  either went out of business, or stopped making sub-prime loans, months ago.

As Private Briefing advised earlier today, the Fed. under its previous chief, Alan Greenspan, had been warned of the trouble that was brewing, years ago.  But Mr Greenspan decided to do nothing about it.

However today, Australian time, the Fed issued proposes changes to Regulation Z, to strengthen what it called “truth in  lending.”  It’s statement sought public comment on the proposals.

Critics who will certainly say this is too little, too late, have a very strong case.

However, the Fed’s idea is still positive.  In its own words, that is “to protect consumers from deceptive home mortgage lending and advertising practices.

Both have been rampant, in the United States, over recent years.  The shonky lenders have, particularly, targeted unsophisticated blacks and Latinos, with their deceptive campaigns.

They believed, of course, that even this kind of lending was essentially riskless, because rising property prices would always cover the debt, even if the borrower defaulted.

Severe reverses, over large parts of the US property market, exposed the flaws in that argument.

Now the US Federal Reserve is struggling to keep the entire US economy out of recession.  It has been forced to cut key interest rates repeatedly and to pump billions of dollars into the system, to encourage lenders to lend again.

But markets remain shaky.

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