June 25th, 2007
Bear Sterns bailed out one of its Hedge Funds to a tune of about $3.2 Billion dollars.? And even word there may be need for a second bail out.? This is due to many sub-prime loans going into default.
The recent rise in rates compounds the problem because many people hoping to refinance are facing refinance rates they still can’t afford.
This poses serious problems for the Fed and really I think banks and mortgage brokers need to step up to the plate.? If the Fed lowers rates to provide some aide, the Private Equity market will probably burn out of control with even cheaper money.?
However, banks and brokers could offer some relief and just fix the loan rates so that the people don’t lose their house and the bank doesn’t end up with a property it can’t sell.? Maybe the people could be required to give back a portion of the profit on a future sale to make the rate adjustment equitable to both parties.? I believe in this case a private sector solution is better than a government one.?
If the Fed raises rates to stave off inflation, the problem for housing will grow even worse.? Some homeonwers that may have made it through one reprice, will not make it through a second and many of the ones facing their first will certainly have problems.? The rise in rates will cool down the Mega Merger/Buy-out mania which could use some cooling.
The continued duel of inflation vs. economy will probably stay in a stalemate for now.? But the Fed is really caught between a rock and a hard place.
-- By +Chris Duncan