A helping hand not a hand out
Both President Bush and Dr. Bernanke made it clear that the government IS NOT planning a bailout for everyone. Specifically help will be provided to a select group and the Fed will still only intervene if economic health is a stake.
President Bush commented, "It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford. Yet there are many American homeowners who could get through this difficult time with a little flexibility from their lenders or a little help from their government."
Bush's plan would allow homeowners who have not missed payments, but who cannot afford their increases in ARM mortgage payments , to refinance into mortgages insured by the Federal Housing Administration. Borrowers will still have to demonstrate good credit risk, and have at least 3% equity in their homes.
In his speech, Dr. Bernanke explained, "It is not the responsibility of the Federal Reserve -- nor would it be appropriate -- to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy."
Soft landing coming?
For now, it appears the Fed and the Bush administration have engineered the beginnings of a soft landing. It seems they have found a good balance between credit crisis and a bailout of those who made risky investments or took out risky mortgages. By providing just enough assurances that the economy, but not speculators, will be protected, economic panic has been averted once again. If the strategy works, the excess speculative risk will be washed out while maintaining economic strength.
However, we are only in the first act of a three act opera and "it ain't over until the fat lady sings" in act three. The Fed have and the Bush administration have done well in Act One. Now it will be up to businesses and individual investors to determine the outcome in Act Two. How they behave in the last quarter of 2007 will determine whether a soft landing is to be or not in 2008.
For more on New Beginnings, check back Sunday for the next segment.
This is not financial or policy advice. Please consult a professional advisor.
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