Not one single fu*king dollar should be spent on this disaster. The market will take care of itself, even if it gets ugly (which it must if we're to cleanse this mess). So why do I have the nagging fear we may potentially be talking over $1 Trillion in taxpayer dollar support before we're done? Fannie & Freddie? Foreclosure support? Bank bailouts?
The Federal Reserve helped create a "perfect storm" in the US subprime mortgage market that could expose up to 2.2m more Americans to the threat of home repossession, Chris Dodd, chairman of the Senate Banking committee, said on Thursday.
Mr Dodd, who is also a Democratic party candidate for the 2008 presidential nomination, alleged that the Fed had failed in its oversight role at a time when the growth in high-risk "adjustable rate mortgages (ARM)" to risky borrowers was exploding.
Mr Dodd said that US regulators had relaxed guidelines on mortgage lending at precisely the point in 2004 and 2005 when the riskiest ARM loans – which impose initially light monthly payments that escalate rapidly at a later date – were growing most rapidly. This also coincided with the start of the Fed's consecutive 17-stage rise in US interest rates.
"Despite those warning signals . . . the leadership of the Federal Reserve seemed to encourage the development and use of ARMs that, today, are defaulting and going into foreclosure at record rates," he said.