To Fix U.S. Credit Mess, Timing Is Critical

Christian Science Monitor (03/11/08) ; Trumbull, Mark
While some observers believe federal policymakers need to slow problems in the credit markets to avoid a major economic crisis, others believe problem loans should be tallied fast to avoid worsening the crisis by delaying the inevitable. The Federal Reserve and the Treasury Department are mixing both approaches, with the central bank substantially lowering interest rates in recent months and boosting the amount of funding available for short-term bank loans to $100 billion this month; such moves give banks time to account for problem loans on their balance sheets. Meanwhile, both the Fed and the Treasury are encouraging lenders to quickly modify problem mortgages, even going as far as urging banks to mark down loan balances to minimize overall costs. If the federal government fails to do enough to curtail foreclosures, home prices could fall dramatically and the national economy could suffer, says University of Oregon economist Mark Thoma. "It'll spiral downward much further than it would have had you intervened," he remarks.