Tuesday, March 04, 2008

What is Bernanke thinking, or is he?

Is it possible that the Fed Chairman could call for banks and other mortgage lenders to write down their loans in some general way to give homeowners equity or more equity in their homes? Is it possible that he could do it in the middle of the market day with no foreshadowing?
Is it possible for investors in these companies to quantify in any way what this means? Unfortunately yes for question number 1, yes for number 2 and of course no for number 3. This seems mind-boggingly naive on Bernanke's part. Could this be a negative watershed event that over the next month pushes some heretofore viable but concentrated mortgage portfolios off the liquidity cliff? Yes it may be. It's definitely time for the honeymoon to be long over for the Fed chief. He is an academic with no business based capital markets experience and, it seems, limited observation of how valuations are derived. His voice quivers at each Congressional testimony. He is the opposite of savvy. He makes big mistakes and inspires little confidence. The fact that his intentions are certainly constructive and that he faces significant challenges are not at issue, his ability to grasp the magnitude of his job is.

2 Comments:

Anonymous kf said...

What's wrong with Bernanke's suggestion that partial loan forgiveness could be better than foreclosure, for all concerned actually.

8:22 AM  
Blogger John Borden said...

KF,
The use of loan forgiveness to prevent foreclosure and associated costs could be a good technique for both the bank, the borrower, and the community in certain situations. No question about that. My problem was with the method of Bernanke's disclosure which suggested that this could lead to some type of policy dictate. Could it factor into Fed and OCC bank exams? Could it lead to congressional action that sets mandates of relief under prescribed circumstances? Who knows? If it was worth his comment in a public forum in midday with the markets open, it must mean something other than some well intentioned jawboning. The biggest problem here is that Bernanke does not seem to realize the power of his statements to the market, or it could be that this is really a precursor to policy.

8:29 AM  

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