It would be nice to think our nation’s financial markets are being operated by men of sober prudence. But, like the all-too-true frantic brokerage scene in the movie Trading Places, they are unfortunately too often in the hands of jittery and hysterical investors, who jump too high with bravado and swoon too deeply with despair.
Our economy is in strong shape, with the exception of wayward loans made to subprime borrowers. Although the percentage of such loans going into default is low, non-plussed investors are running away from mortgage products as fast as they can. That’s scaring other investors and causing concerns of a liquidity shortage. No credit for companies means no economy. But investors, by their imprudent actions, are all but causing the very downturn they’re so afraid of.
There’s only so much federal regulators can do to stanch this. But they should certainly be doing everything possible. That was the message, appropriately, that Senate Banking Committee Chairman Christopher Dodd delivered to Ben Bernanke last week. Connecticut’s senior U.S. Senator urged the Federal Reserve chairman to use “all the tools available” so that a spreading credit crisis doesn’t undermine the national economy.
Yet Dodd didn’t ask Bernanke to lower a key interest rate called the federal funds rate, which has stood at 5.25 percent for more than a year.
So far the Fed has been reluctant to reduce the funds rate, which is the interest rate that banks charge each other on overnight loans and is the central bank’s main lever to influence economic activity. A cut in the funds rate would cause commercial banks to lower their prime lending rate charged to many consumers and businesses.
While a lower funds rate could have positive implications, Dodd stressed that he did not want to appear to be putting “political pressure on the Fed.”
That’s being disingenuous. Of course Dodd is putting on political pressure; he had no other reason for the meeting. The question is, why hold back? Why not speak up and ask for the Fed to bring out its biggest gun and end this problem decisively?
Dodd said he welcomed the Fed’s steps thus far to deal with the credit problems. The Fed last week sliced its discount rate to banks and has been pumping billions of dollars into the financial system. Dodd said he was impressed with these actions.
That’s all well and good. But the markets so far aren’t sure if they agree. If Dodd wants to show Executive Office mettle, he ought to be more decisive than this.
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Gas Tax A Mistake
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A proposal by Democrats in the U.S. House of Representatives to raise the federal gasoline tax to repair bridges comes at a bad time. The Democratic chairman of the House Transportation Committee, Rep. Jim Oberstar, D-Minn., proposed a 5 cent increase to the 18.3 cent federal fuel tax to establish a new trust fund for repairing or replacing structurally deficient highway bridges.
While we agree that a lot of our bridges are in need of repair, we would submit that there are other, more responsible ways to repair them than by raising taxes.
With financial markets tumbling dramatically in recent days as a result of the subprime lending mess, the economy doesn’t need the added risk of a tax increase. Home loans to high-risk borrowers have up to 7 million homes at risk of foreclosure.
It seems that for too long, members on the transportation committee have been able to cherry-pick what projects were good for them. This approach, we are sure, doesn’t always focus on the highest infrastructure priorities.
The bottom line is that we as Americans are taxed too much, and we don’t need this one added on — particularly at a time when we are having a subprime meltdown.
— Bowling Green (Ky.) Daily News
