US official cites progress in easing bank crisis
Thursday October 23, 10:39 am ET
By Martin Crutsinger, AP Economics Writer
Treasury cites progress in easing crisis; Greenspan calls downturn 100-year
`credit tsunami'
WASHINGTON (AP) -- The head of the government's $700 billion financial rescue
program told Congress Thursday that the Bush administration has made
"tremendous progress" in pushing to get it implemented.
Neel Kashkari, a Treasury Department official who is interim head of the
program, told the Senate Banking Committee in prepared testimony that since
last week's announcement that the government would spend $250 billion to buy
bank stocks to bolster capital reserves, there has been "numerous signs of
improvement in our markets and in the confidence in our financial
institutions."
Separately, former Federal Reserve Chairman Alan Greenspan told another
congressional panel that the current global financial crisis is a "once in a
century credit tsunami" that policymakers did not anticipate.
Although some critics have blamed Greenspan for contributing to the current
crisis by leaving interest rates too low for too long, he put the blame on
soaring mortgage foreclosures on overeager investors who did not properly take
into account the threats that would be posed once home prices stopped surging
upward.
Greenspan was the leadoff witness before the House Government Oversight and
Reform Committee, a hearing that lawmakers called to question past key
financial players about what they felt caused the most grave financial crisis
since the 1930s. The witnesses were also expected to be asked how they thought
the government would deliver the nation from the economic turmoil.
Committee Chairman Henry Waxman, D-Calif., suggested that Greenspan contributed
to "irresponsible lending practices" by rejecting appeals that the Fed
intervene to regulate a surging subprime mortgage industry.
"The list of regulatory mistakes and misjudgments is long," Waxman said of
oversight by the Fed and other federal regulators.
The financial crisis was the subject of simultaneous hearings in both the House
and the Senate, where most lawmakers are in the middle of their Election Year
break.
Kashkari, in his Senate testimony, cautioned that "while there have been recent
positive developments, the markets remain fragile."
Another witness before the Senate panel, Sheila Bair, head of the Federal
Deposit Insurance Corp., said the government can use its new authority from
Congress to directly help struggling homeowners to overhaul mortgages by giving
banks an incentive to modify the loans.
Bair has been urging that the government do more to help tens of thousands of
home borrowers avert foreclosure. She suggested in prepared testimony that
could be done by having the government set standards for modifying mortgages
into more affordable loans and providing loan guarantees to banks and other
mortgage services that meet them.
The federal regulators -- past and present -- testified as the Bush
administration weighed how to carry out a provision of the $700 billion bailout
passed by Congress earlier this month to help financially strapped homeowners
renegotiate more affordable loans and avoid foreclosure.
The new law includes several provisions to encourage mortgage revisions for
homeowners in difficulty, Bair noted in her testimony. They give the Treasury
Department authority to use loan guarantees and credit enhancements to promote
modifications of mortgages to make them more affordable.
"Loan guarantees could be used as an incentive for servicers to modify loans,"
Bair said in her prepared testimony. "By doing so, unaffordable loans could be
converted into loans that are sustainable over the long term."
The FDIC is working "closely and creatively" with the Treasury Department on
such a plan, she said.
http://biz.yahoo.com/ap/081023/financial_meltdown.html
To keep a lamp burning, we have to keep putting oil in it
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