Foreclosure News – Further Cuts in Interest Rates by Federal Reserve

May 5th, 2008

Following rapid rise in foreclosure figures May begins with the news that the US Federal Reserve made further cuts in interest rates. Inter-bank rates were overnight brought down to 2% from the 5.25% rate that had been introduced in September. This is the seventh rate cut since the foreclosure crisis intensified in August last year. Also was announced a quarter point cut in its discount rate – this being the interest it charges on direct loans to commercial banks to 2.25%. The US central bank however announced that it would not make further cuts during the forthcoming months. The stock markets reacted with gains early in the day. Investors were cautious in their reactions. There is a sharp shift in the sentiments of the market since the Fed intervened last March to save Bear Sterns.

The Fed also took the unprecedented step since the Great Depression of the 30’s of permitting non-depository investment banks to borrow directly from the coffers of the Federal Bank in lieu of mortgaged backed debt and other similar type of securities whose market value is at an all time low.

The Federal Bank admitted that it had to take these drastic measures to stall a complete collapse in the financial system. In this way it gave its assurance to the banking and investment sections that the US government would come forward with its entire resources to tackle the foreclosure crisis. It would act as a protective shield against uncontrolled speculation and predatory lending using deceptive and fraudulent methods.

Since the Bear Sterns operation the US stock market has shown a growth of 7% and financial stocks have gone up despite the current banking losses. This has plunged further the prices of houses, increased lay offs and decreased spending by consumers. In all, it has worsened the foreclosure crisis.

The Federal Bank has injected billions into the financial market to loosen credit freeze and give a boost to banks. But practically nothing has been done to help millions of working class people who are being battered by unemployment, soaring food and gas prices and a collapse of the price of houses. The stock market and financial markets may have found their bearings, at least temporarily, but the signs of economic and social slump are clear for all to see. During the first quarter, economic activity increased by a pale 0.6% – and that too by jugglery with business inventory figures.