By Truman Lewis
ConsumerAffairs.com
October 16, 2007
Except for the surprisingly perky and upbeat Fox Business Network, which debuted with giggles and grins yesteday, the mood in financial circles is one of tight-lipped apprehension, with small beads of sweat increasingly visible on very important foreheads.
Perhaps trying to master the understatement that was the hallmark of his predecessor, Fed Chief Ben Bernanke last night declared that uncertainty remains unusually high.
Bernanke told the New York Economic Club that a full recovery isn't likely to happen anytime soon but he declared the banking system sound.
Meanwhile, Treasury Secretary Henry M. Paulson Jr. was in Washington speaking to a Georgetown University law forum. He also offered a pessimistic view of the housing slump and called on Congress to offer help to hard-pressed homeowners and to adopt tighter new mortgage regulations.
The housing slump is "the most significant current risk to our economy, Paulson said.
He said it's essential to identify struggling borrowers, steer them to mortgage counselors and find a workable solution to their indiviudal situation, including loan modifications, refinancing and other measures.
Citing recent surveys showing that as many as half of the borrowers who have gone into foreclosure never had prior discussions with mortgage counselors, Paulson said, That must change; early intervention is critical, The New York Times reported.
Banks try to cope
With federal officials watching from the sidelines, the nation's big lenders are trying to devise a strategy for dealing with the crisis.
A plan announced by the financial industry yesterday involves wooing investors and other banks to put money into a megafund that would buy troubled assets. It would not require any money from taxpayers, meeting the Bush administration's insistence that it will not consider bailing out banks or investors.
Heading the effort to set up a $100 billion fund are Citigroup, J.P. Morgan Chase & Co. and Bank of America Corp.
If the banks can convince investors to put money into the fund, it might avoid a market meltdown that could occur if nothing is done to stabilize investment vehicles that are now being forced out of business by the two-headed monster -- rising default rates and falling property values -- now attacking the real estate industry.
Treasury officials fear the financial markets are in danger of a large-scale dumping of assets by the banks, which could quickly spill over to the broader economy.
