The Fed Strikes Back...or the Emperor has no Clothes.

Ben Bernanke told Congress the obvious earlier today. What did he tell them? The economy is in danger because people bought subprime loans.

What's a subprime loan? It's a loan for people with shitty credit. Basically, these people allowed their emotions to override reason. "Gee I can buy a house? With no money down? My monthly payment will be $650? Hell, my take home is $800. I can pay for that! Where do I sign?"

Several months later the banks increase the interest rate. Now the payments double. People defaulted on their loans. Hence the economic meltdown.

Bernanke said "The outlook for the economy has worsened in recent months and the downside risks to growth have increased," Bernanke told the committee. "To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so."

The Fed chief told senators the "virtual shutdown" of the market for subprime mortgages given to people with blemished credit histories or low incomes -- and a reluctance by skittish lenders to make "jumbo" home loans exceeding $417,000 -- have aggravated problems in the housing market. "Further cuts in homebuilding and in related activities are likely," he said. (yahoo finance)

What? Banks won't lend $417,000 because the losers they lent to are broke? Imagine that.

Bernanke said that in his own economic forecast he did not predict a recession but a period of sluggish growth "followed by a somewhat stronger pace of growth starting later this year" as the impacts of the Fed's rate cuts and the $168 billion economic stimulus package of tax rebates begin to be felt.

However, he also said there were significant downside risks ranging from the threat that the housing slide could become even more severe, the job market could deteriorate more than currently expected or that the credit squeeze will intensify. He said the Fed would be monitoring the economy closely and would "act in a timely manner as needed to support growth and provide adequate insurance against downside risks."

The man with direct control over our economy said that. Guess what happened? Stocks dropped again.

Economists now think the Fed will cut rates again in March 18th and April 30th by 1.25 points.

Bernanke and some other guys said the economic placebo cash will save the economy from recession. The first checks will fly out in May.

The Fed will press mortgage lenders to give a 30 day grace period for people seriously behind in payments. The bankers were also asked to freeze interest rates.

Here's where things get stupid.

Democrats want more.

But a group of Senate Democrats said those efforts fell far short of what is needed. They announced outside of the hearing that they were introducing a second stimulus measure that would have a variety of initiatives to help stem foreclosures including providing $4 billion in new community development grants to purchase and rehabilitate foreclosed properties.

"If we really want to tackle the economic problems the country is facing, we must address the housing crisis that got us here," said Sen. Charles Schumer, D-N.Y., a supporter of the new stimulus measures.

Tackle the issue by throwing money at it. Don't educate people. Provide government loans/grants for them. Why empower people with independence through knowledge, when you can make them dependent by ignorance? Oh well. People mess up. Government steps in to clean it up.

Can't pay for your house? It's not YOUR fault. What will the federal government do for ME?

Senate Banking Committee Chairman Chris Dodd, D-Conn., told reporters after the hearing that he planned to explore a proposal to create a Homeownership Preservation Corp. that would buy mortgages at steep discounts from mortgage firms and banks and then rework the loans based on the reduced value of the properties, making the payments more manageable. (http://biz.yahoo.com/ap/080214/congress_recession_threat.html?.v=28)

What he means is government will buy the loans from banks. Then they'll loan it out to the public. Sounds good eh? I'm not so sure. Do you remember the student loan scandals of 2007 to present? Giant lenders getting jacked-up interest rates from sweetheart college loan deals. College administrators and politicians getting what looks like kickbacks. And the average citizen is left with the bill.

Economic classes in elementary school? Critical thinking classes in high school? Hell no. People don't need to learn to think for themselves. They need to be herded.

Sheep will continue to spend more money than they earn. However, I can't blame them; not entirely. Where did the herd learn such behaviour? They learned from government. Tax, spend and borrow. Save? Never.

In the end Bernanke and government will succeed in providing a short-term solution to a long-term problem. The lesser problem is the subprime crisis.

The greater problem is the ignorance of our countrymen.

I forgot to mention the subprime meltdown cost the global market $7.7 TRILLION in stock market value since October (according to Joseph Quinlan, chief market strategist for Bank of America). (www.breitbart.com)