Foreclosure Crisis Leads To Fear To Lend

One of the worst fallouts from the foreclosure crisis is that banks and financial institutions are suffering from fear to lend. This has further worsened the economic situation.

In response to this problem the Feds, under the guidance of chairperson Ben Bernanke have undertaken a series of measures from autumn of 2007 till June his year by which new routes have been opened for lending by the central bank. Most of it is to investment banks that hitherto had been left alone to solve their problems.
Critics say that the Fed has overstepped its limits by not only putting at risk taxpayer’s money but also by doing so encouraging a rerun of the foreclosure crisis. Supporters claim that the move is innovative and creative. The general opinion lauds the move.
Jeremy Siegel, professor of finance at Wharton comments, “The Fed has been very innovative and very appropriate – and very timely.” However he has his reservations about the series of interest rate cuts made when inflation was beginning to increase. He has a word of praise for Bernanke whose name will go down well in history. A mild recession is in the offing and after that things will pick up. During the Great Depression about seven decades ago the Feds did not come to the rescue under the same situation. The entire financial system crumbled and unemployment increased by 25% and GDP went down by 1/3rd. He said, “I mean, these are magnitudes that we can’t even imagine today, but it shows you how bad things can be.” Many elders and ordinary citizens who had lived through those days say that the current foreclosure related financial crisis is not as bad as those days seventy years ago.
The prompt and timely actions by the Feds has not only addressed the problem of cash flow but it has created an atmosphere of confidence that is attracting new capital to make up for the jumbo losses that were incurred due to the foreclosure crisis, says another finance professor, Richard J. herring. He said that the swift steps “have encouraged banks recapitlaize very, very quickly. Sovereign wealth funds (and) to some extent private equity, (and) to some extent shareholders … have been recapitalziing these banks in massive amounts, which will … give them some time to restructure and find new and more profitable business models. “
Other pundits however are worried about unintended results.

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• The Feds Take Measures to Allow Free Credit Flow to Prevent Further Foreclosures
• Bernanke’s Remedies for Mitigating Foreclosure Crisis to Be Discussed
• Foreclosure Crisis Has Exposed the Defect in the Structure
• American Government Failed To Note Warnings From Increasing Number Of Foreclosures