Interest Rate Roundup

Thursday, March 13, 2008

Feds weigh in on causes of the current crisis -- and how to prevent future meltdowns

If you haven't already seen the news, the President's Working Group on Financial Markets has weighed in on the financial crisis -- what helped cause it and what can be done to prevent similar crises in the future. The PWG had the following to say about the nature of its recommendations:

"The recommendations offer steps to improve market transparency and disclosure, risk awareness and risk management, capital management and regulatory policies and market infrastructure for products such as over-the-counter derivatives. The statement focuses on changes needed from financial regulators and all market participants, including mortgage originators and brokers, financial institutions, issuers of securitized products, credit rating agencies and investors. The statement also discusses the challenges presented by securitization and over-the-counter derivatives."

Treasury Secretary Paulson goes into more detail here about the recommendations, if you're interested. Or if you're a real policy wonk, you can read the complete 21-page document at this PDF link.

Meanwhile, there's a new plan in Congress to help ease the foreclosure crisis. In a nutshell, the proposed legislation from House Financial Services Committee Chairman Barney Frank encourages lenders to write down mortgage principal balances. Then the affected borrowers would be refinanced into FHA-insured mortgages. There's a lot of nitty gritty involved, which you can read about here.


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