This is why the Constitution REQUIRES Congress to regulate interstate commerce. I know the neocons running the government seem to have an aversion to government regulation, but even 221 years ago, the framers had an inkling that stuff like this might happen.
From The New York Times: Fed to Clamp Down on Exotic and Subprime Loans
With no end in sight to the turbulence in the housing and financial markets, the chairman of the Federal Reserve said on Tuesday morning that it would issue new lending rules next week to restrict exotic mortgages and high-cost loans for people with weak credit.
The chairman, Ben S. Bernanke, also said that the Fed was considering extending its program of low-cost overnight loans to the nation’s largest investment banks into next year. The lending program, which is supposed to be temporary, began in March in response to liquidity problems on Wall Street during the near-collapse of Bear Stearns, which was sold to JPMorgan Chase to avert going into bankruptcy.
The Federal Reserve is expected to announce new mortgage lending
rules at a meeting on Monday. It is not known whether the Fed will
significantly change the proposal it made last December, which provoked
more than 5,000 letters, including heavy criticism from the mortgage
industry and other parts of the housing industry.
lobbyists maintained that at a time of tight credit, tougher rules
could make many mortgages more expensive by creating more paperwork and
potentially exposing lenders to more lawsuits. They also complained
that the restrictions were too broad and would restrain lenders from
issuing otherwise creditworthy loans. Three of the industry’s most
influential trade groups — the American Bankers Association, the
Mortgage Bankers Association and the Independent Community Bankers of
America — separately filed letters criticizing the proposals.
the other hand, consumer groups complained that the proposed rules
would not be strong enough. They maintained that any efforts to further
weaken the proposal would render it all but useless.
See, the part of this that a lot of people seem to have a hard time understanding is that all of this could have been avoided in the first place, had the far right morons in Congress not written these types of mortgage instruments into the law in the first place.
The far right — and by the way, one of the architects of this
monstrosity is Phil Gramm, a major player on the McCain campaign —
loves to create mechanisms that make the economy look good in the short
term, but serve to screw us in the long term. They have an affinity for
hedging, for some reason, which is how Enron got in trouble earlier. In
fact, even after that debacle, they created mortgage rules that
essentially institutionalized Enron-style accounting in the mortgage
business. And this is what we are left with.
I want to know when someone (and this is not Mr. Bernanke’s
responsibility, so I’m not putting this on him) will grant relief to
the homeowners who have been screwed and are losing their homes as a
result. It’s important to keep financial institutions solvent, of
course, but at some point, someone has to do something about the people
who borrowed money based on Enron-style accounting, as well, and are
finding themselves in deep trouble. And it’s not just for their sakes,
either; it’s for the entire market. A huge inventory of empty homes is
not good for anyone, especially in a tighter mortgage market.
If there was ever a time to vote for anyone with a "D" after their
name, this is the year, folks. We have to pass laws that re-regulate
financial markets, and re-establish responsibility to all markets. At
what point do we get sick of being hosed?