A Banking Storm

There's a storm in the banking sector of the economy.

I'm not sure if this is just a summer thunder storm or, if the sky will turn green, and we'll see a tornado come out of the sky.

At least the regulators are trying to do something.

IndyMac, which is a local area bank in California, has been taken over by the FDIC. There was a run on the bank today. The government has come along to bolster (prop up might be too strong of a term at least for right now) Fannie Mae and Freddie Mac (both of which are in the DC area). This slowed the free fall the two companies stocks were in. Finally, the Fed has come up with new rules for what was once called the subprime market.

Here's some of what the Fed did (from a story in the Post):

Under the rules, lenders can make subprime loans only to borrowers who can be reasonably expected to repay them. In doing so, they must assess the borrower's ability to pay the highest scheduled monthly payment in the first seven years of a loan. Previously, lenders considered only the ability to repay low teaser rates that could later rise sharply, as many of them did.

Too little, too late?

Maybe. But at least there has been a recognition across the board (even among Republicans) that something needed to be done. That the "free market" had created a big mess. It needed someone to come in and make reasonable rules on how the game in the market was to be played. This is after all what the government can and should do.

These actions make me feel better about the prospect of action if some other problem should rear its head. I don't think we'll get the response, like we did last August, that the subprime market would not impact the economy as a whole. How wrong were they on that one?

So my bet, at least for right now is that this is a summer storm. One where you have to go in your house and close your windows. Not a storm where you need to seek shelter in your basement.