Fed, Treasury Answer for Their Bailout Changes

Nov 19th, 2008 @ 10:13 PM by Amber Nelson

U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke faced bitter criticism Wednesday for their actions in the current mortgage foreclosure crisis, during a hearing before the House Financial Service Committee.

Paulson, who has headed up the $700 billion bailout program approved last month by Congress, recently announced his plans to use the funds to shore up the banking sector of the economy, rather than direct them at preventing more homeowner foreclosures as dictated by the legislation. His department has already spent about half of the allotted monies and intends to leave the rest for the incoming Barack Obama Administration to work with.

“The prudent course, at this time, is to conserve the remaining funds available from the [rescue program], providing flexibility for this and the next administration,” Paulson told lawmakers.

Several in the hearing were very upset by Paulson’s plan. Representative Barney Frank, D-Mass. reminded Paulson that the original legislation was intended to help ease the country’s rising foreclosure rates. “Indeed it was a very important part of the effort to get votes for this bill, that we would do mortgage foreclosure reduction,” Frank said.

In response, Paulson replied that "when the facts changed and the circumstances changed, we changed the strategy. We didn’t implement a flawed strategy. We implemented a strategy that worked.”

Fed Chairman Bernanke took heat during the same hearing for his decision not to disclose the names of banks getting government money from $2 trillion of emergency loans made from taxpayer funds.

"Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting," Bernanke defended "…There is a concern that if the name is put in the newspaper that such-and-such bank came to the Fed to borrow overnight for a perfectly good reason, that others might begin to worry is this bank creditworthy and that might create a stigma, a problem, and might cause banks to be unwilling to borrow, and that would be counterproductive."

Still many on Capitol Hill worry that this lack of transparency without public accountability will lead to further abuses of lending and taxpayer dollars.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

Posted in Mortgage Refinancing, Mortgages
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