The federal government has been quite aggressive in the past few months in infusing money into the financial system in order to turn the tide on the still deteriorating housing industry. One of the key goals of this was to assist homeowners facing foreclosure find a way out of their mortgage payment problems. The capital, however, was given to the banks in good faith, without enforceable regulations to make sure they would comply.
Sure enough, it appears that many lenders have found better uses for the funds than help struggling borrowers. For one, it's nice to get the taxpayer to take care of a balance sheet that sags under the weight of under-performing mortgages, acquired without careful analysis of their soundness. Hoarding cash also gives them the opportunity to grab a failing bank or two when nobody is looking. There are other ways to make money work.
To deflect light from these objectionable actions the bankers are now saying that federal regulators are demanding they must meet certain capital requirements. Supposedly that prevents them from fulfilling their mission to help turn around the messy real estate market. Maybe so.
The weak housing industry got the entire economy in the pickle to begin with and it can lead it out of the gloom, too. With the right moves the financial sector and its regulators together should be able to come up with policies that would make a lasting difference. But what has happened so far is much less than what could've been done. The banks obviously are shirking their responsibility and missing now on setting up a path to long-term prosperity. The government with its regulatory power clearly has difficulties finding the right mix of answers to get any type of a meaningful recovery started.
The bottom line, a fresh approach is needed in the decision-making process where it matters, government or private.