The Federal Reserve Becomes Political

Last Friday the Federal Reserve sent a 26 page paper to Capitol Hill, without invitation, offering a "framework" for "thinking about certain issues and tradeoffs" in the housing market.


Although the paper is vague on how this "framework" would be implemented, the NY Fed President William Dudley left no doubt as to the lobbying effort this paper represents for more political power in the housing market.  He specifically called for bridge loans for jobless borrowers, more government-assisted re-financings, a new program for principal reductions for underwater borrowers, and floated the possibility of getting Fannie and Freddie into the rental housing business.  Apparently the Fed believes that they need to share in the spoils of the Obama Administration's breathtaking federal power grab through regulatory government agencies. 


The Federal Reserve was established to be an independent agency in charge of monetary policy and bank regulation -in other words, an agency with a clearly defined and limited government role.    Extending that mandate to include the regulation of customers of a bank is an over-reach of epic proportions, but we have come to expect no less from this President.


This document provides all the political cover necessary for politicians willing to spend taxpayer money  to support housing prices in an election year .  This is what passes for neutral and independent in the Obama Government.


According to The Wall Street Journal there have been 16 government sponsored programs in the last 5 years.  None of which have succeeded in improving either the economy or the housing market.  But we are to believe that a Federal Reserve policy will? 


This Administration's belief that government intervention into private markets is so far off base as to be laughable if it wasn't so sad that so many people are out of work due the wrong-headed government policies sponsored by the Obama White House.   First, the Federal Government has prevented the banks from foreclosing on properties and allowing the market to "clear" the houses on the books. 


Secondly, the Justice Dept. went after Bank of America on the weird assumption that some Black and Hispanic mortgage holders were unfairly charged higher mortgage rates than the average cost of mortgage fees.  This is  ignores the fact that some Black borrowers paid less and some White borrowers paid more as well.  An average is, well, an average.  It means that some paid higher and some paid lower to come up with an average a fine point entirely missed by the Justice Dept.  White borrowers who paid more are on their own, only the politically expedient borrowers (the ones who can be counted on to vote Democratic) are of concern.  This bias also does not take credit history into this calculation.  Justice is served if Black and Hispanic borrowers always pay less than White borrowers?


The Federal Reserve will no doubt argue that the economy can't recover until the housing market recovers.  This confuses basic principles otherwise known as economics.  The housing market will recover when the overall economy recovers.  In other words, the housing market does not drive economics it's the other way around.  We're sure that the Fed also understands this.  They're counting on the fact that you don't.

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