The Creation of the Federal Mortgage Insurance Corporation! (FMIC)
After the stock market crash of 1929, thousands of banks failed.
In 1933, Congress and then President Roosevelt created the Federal Deposit Insurance Corporation, better known to all of us as the FDIC.
A federal government guarantee of deposits.
Its effect was to maintain stability and public confidence in the nations banking system.
The failure of Indy Mac Bank has the FDIC stepping in to meet its obligations to payback account holders the value of their insured assets.
It is not pretty and as the largest bank failure to date, it is testing the system in a trial by fire way.
But if you believe Senator Barack Obama, that there is "little doubt that the US is likely in a recession" and that swift steps to shore up the housing market are a huge part of that recovery then the FMIC is the obvious answer.
Another stimulus packages and pumping money into Fannie Mae and Freddie Mac are not the answer.
The government keeps treating the symptoms and not the disease.
The majority of analysts and economists that look at the problem conclude that stopping home prices from declining is the first step in any recovery.
But how are prices to stabilize when lending institutions are pulling back their lending? As the desire to lend has decreased coupled with higher lending standards and higher levels housing supply, due to a poor economy and foreclosures in some markets, prices can only continue to drop.
Actual credit losses and Fannie and Freddie are small compared with their overall portfolio.
What they are suffering from is a crisis in confidence.
According to mortgage industry veteran Robert Kofsky, The creation of the FMIC to co-insure FNMA, FHLMC and the Mortgage Insurance Companies against further losses would create new confidence in the mortgage markets, create higher values for mortgage bonds, create additional liquidity for the banks and create additional capital for lending since risk would be reduced by the backing by the FMIC.
Using minimum standard qualifying lending requirements, losses would be limited up to a specific dollar amount per property similar to the way the FDIC insurance works now.
This would provide buyers financing to enter the market with confidence causing home prices to stabilize.
Put a halt to or at least reduce write-downs on quality mortgages, create better balance sheets and enable in some cases financial institutions to write-up some exiting investments.
This would further reduce the foreclosures and the cost to the federal government would stay low saving taxpayers money.
As it stands now, we are footing the bill for all of it.
Rather than pump money into the system to treat the symptoms, let's cure the disease which is a crisis of confidence.
Our history tells us that the creation of the FMIC would have the same desired effect.
Using taxpayer dollars to bail out financial institution or throwing money at the problem like the Treasury and the Federal Reserve seem to do to in their keystone cop response to these situations, finding a viable long-term solution is the only way to cure what ails the financial markets and the economy.
In 1933, Congress and then President Roosevelt created the Federal Deposit Insurance Corporation, better known to all of us as the FDIC.
A federal government guarantee of deposits.
Its effect was to maintain stability and public confidence in the nations banking system.
The failure of Indy Mac Bank has the FDIC stepping in to meet its obligations to payback account holders the value of their insured assets.
It is not pretty and as the largest bank failure to date, it is testing the system in a trial by fire way.
But if you believe Senator Barack Obama, that there is "little doubt that the US is likely in a recession" and that swift steps to shore up the housing market are a huge part of that recovery then the FMIC is the obvious answer.
Another stimulus packages and pumping money into Fannie Mae and Freddie Mac are not the answer.
The government keeps treating the symptoms and not the disease.
The majority of analysts and economists that look at the problem conclude that stopping home prices from declining is the first step in any recovery.
But how are prices to stabilize when lending institutions are pulling back their lending? As the desire to lend has decreased coupled with higher lending standards and higher levels housing supply, due to a poor economy and foreclosures in some markets, prices can only continue to drop.
Actual credit losses and Fannie and Freddie are small compared with their overall portfolio.
What they are suffering from is a crisis in confidence.
According to mortgage industry veteran Robert Kofsky, The creation of the FMIC to co-insure FNMA, FHLMC and the Mortgage Insurance Companies against further losses would create new confidence in the mortgage markets, create higher values for mortgage bonds, create additional liquidity for the banks and create additional capital for lending since risk would be reduced by the backing by the FMIC.
Using minimum standard qualifying lending requirements, losses would be limited up to a specific dollar amount per property similar to the way the FDIC insurance works now.
This would provide buyers financing to enter the market with confidence causing home prices to stabilize.
Put a halt to or at least reduce write-downs on quality mortgages, create better balance sheets and enable in some cases financial institutions to write-up some exiting investments.
This would further reduce the foreclosures and the cost to the federal government would stay low saving taxpayers money.
As it stands now, we are footing the bill for all of it.
Rather than pump money into the system to treat the symptoms, let's cure the disease which is a crisis of confidence.
Our history tells us that the creation of the FMIC would have the same desired effect.
Using taxpayer dollars to bail out financial institution or throwing money at the problem like the Treasury and the Federal Reserve seem to do to in their keystone cop response to these situations, finding a viable long-term solution is the only way to cure what ails the financial markets and the economy.
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