FDIC's Bair Says U.S. Economy Facing Great Financial Stress

Speaking at a conference organized by the National Association of Business Economics on Monday, Federal Deposit Insurance Corporation Chair Sheila Bair the U.S. economy is facing a period of "great financial stress" and that additional regulation is absolutely necessary.

"An affordable loan that the borrower can pay over the long term has always been the linchpin of the mortgage finance system," Bair said. "As we now know, in recent years, many mortgage brokers weren't thinking about affordability when giving out tens of thousands of no doc, no down payment loans."

"Protecting the consumer from such perils is not simply a do-good public service," she added. "In fact, consumer protection, and safe and sound lending practices are two sides of the same coin. Lenders who put their retail customers at risk also put themselves, their investors, and our entire financial system in danger."

The head of the FDIC stressed that protecting the consumer has to be done in a simple, understandable and transparent fashion.

She also said that the government's decision to raise the deposit insurance limits to $250k will be helpful in providing assurance, but did not address all the problems of the financial system.

By Erik Kevin Franco and edited by Nancy Girgis
©CEP News Ltd. 2008