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Many on Main Street don’t recover after rescue
After $350 billion was pumped into relieving the mortgage crisis, the majority of homeowners who modified their loans still ended up in default, CNNMoney reported last month.
The original bailout plan seems to be failing homeowners more than it is helping them. However, that’s not stopping Federal Reserve Chairman Ben Bernanke from asking the government to throw more money at struggling financial institutions.
Fighting debt with debt
In 2008, banks began modifying home loans in the midst of a high level of foreclosures. Within six months, 53 percent of the loans that were modified in the first quarter ended up back in default. Fifty-one percent of the loans modified during the second quarter ended up back in default within six months as well.
Obama has requested that Congress allow access to the other $350 billion that was slated for the Trouble Asset Relief Program. Bernanke is saying that additional capital will likely need to be injected into financial institutions in order to provide lasting economic recovery.
Where would extra money go?
In order for the economy to recover, Bernanke says, troubled assets must be removed from banks’ balance sheets. They also need more debt guarantee, he says.
He conceded that better regulation and new global policy needs to be put into place. But he also stressed the need for immediate action to keep financial institutions and the economy from further turmoil.
“It’s good advice in general if there’s a fire burning, you try to put it out first, and then think about the fire code,” Bernanke said.
He also recommends that the Fed leave its key interest rate near zero for now. The Federal interest rate does not directly affect the payday loan industry, but some states are pushing for laws to set interest rate caps for short-term loans.
Moving ahead
Evidence shows that the initial $350 billion in bailout money is not helping the majority of homeowners. Furthermore, the Treasury was lax in keeping track of where the money was being spent. A Congressional panel last week criticized the Treasury for both ineffective and vague use of the bailout funds.
Obama has assured the public that he plans oversight reform to be applied to the remaining funds. He also want to toughen conditions placed on financial institutions that receive rescue money.
More money, more problems
Bernanke made his statements about needing more bailout money at the same time he said he believes that Obama’s $800 billion stimulus plan will be effective, to an extent. At this point, none of the stimulus package funds are slated for helping financial institutions.
In short, at this point the remaining $350 billion in TARP funds is the only money dedicated to continuing to fix the mortgage crisis. Both Republican and Democratic lawmakers have expressed frustration with the way the initial $350 billion was spent and monitored. Democratic leaders have made it clear that reducing foreclosures must be a primary goal in using the remainder of the funds.
Check back with your payday loan source for more news on the economy.
Money, money, and more money. You’re definitely right on this one. The more money there is, the more problems seem to arise. Let’s just hope Obama’s new economic stimulus plan is played out well (with the help of tactful team players) and confidence and prosperity is restored in the American country. These government officials should not be so quick to point out what could go wrong with this new plan. Instead, they should be more positive and willing to work with one another to accomplish one goal at a time.