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Tuesday, January 10, 2012

Obamanomics Invades the Fed

To date, I've generally thought Ben Bernanke has done an admirable job in trying to keep the economy from regressing in the face of disastrous Obamanomics policies. But now, as the WSJ explains, the Fed is made up more of Obama's believers, and they seem to be more and more another appendage of the Obama administration, putting its independence at stake.

This extraordinary political intrusion came in the form of a 26-page paper that the Fed sent to Capitol Hill last Wednesday, without invitation, graciously offering what Chairman Ben Bernanke called a "framework" for "thinking about certain issues and tradeoffs." He was underselling his document. The paper is a clear attempt to provide intellectual cover for politicians to spend more taxpayer money to support housing prices.

In case there was any doubt on this point, New York Fed President William Dudley put them to rest Friday when he called specifically for bridge loans for jobless borrowers, more government-assisted refinancings, a new program for principal reductions for underwater borrowers, and floated the possibility of getting Fannie Mae and Freddie Mac into the rental housing business. Your average HUD secretary wouldn't dare go this far.

...The Fed also suggests having Fan and Fred weaken their standards for loan modifications and expand an existing refinancing program to include private-insurance-backed mortgages participate. But weak lending standards is part of what created the subprime mortgage mess. No wonder the mortgage bankers, the homebuilders and the rest of the housing lobby greeted the Fed's white paper with enthusiasm. They'd love to see Fannie and Freddie more politically and economically entrenched so reformers can't slowly reduce their market dominance.

...Beyond the policy errors, the larger issue is the political independence of the Fed itself. Its Board of Governors is now dominated by Obama appointees who share the interventionist designs of their colleagues in the White House. Mr. Dudley is a White House and Treasury man. Mr. Bernanke may feel surrounded, but we'd have thought he'd have more respect for the integrity of his institution.

The Fed sure is becoming more generous with our money.