Senate Takes Steps to Prevent Another Foreclosure Crisis – But Will it Succeed?

The Senate is taking steps to prevent another foreclosure crisis – but the moot question is that will it succeed? Who brought about the Great Recession? A motley group comprising of naïve borrowers, carnivorous lenders, sleepy regulators, a unchained parallel banking system and managers with myopic vision tied to elephantine companies that would crush all under it weight if allowed to fall. What can be done to prevent this cocktail from brewing again?

The Congress will soon be returning from recess and start debating on legislation targeting reform of the financial industry by setting up a regulatory system that will be able to put their finger bang on the precise trouble spots before the boils break out. The idea is to cool down the swelling without totally pushing the national and global economy off the rails.

The legislation is being taken up one year and seven months after the Wall Street collapse. It is long overdue. But the critics are worried that it will restrict the movement of the banks and this will put brakes on the growth of the economy. Professor James J. Carroll of Georgian Court University (Lakewood) said, “It’s a kind of classic do-we-want-regulation-or-not discussion.”

The experts opine that the identification of the culprits has been completed. Borrowers were granted loans even without checking on their income. The lenders were happy doing this because they took no risks – Wall Street bought these loans, made bundles of these and sold them to international investors.

The mortgages were laced with risks. After the initial teaser rate the interest shot up and the income of the borrowers prevented them from keeping pace with it. A chain of defaults set in with thousands and millions failing to pay. It triggered off the Great Depression of American history.

In New Jersey 228,300 jobs vanished. Across the nation 8.4 million jobs were lost. Many faced foreclosure while others went underwater – the value of the house having fallen to less than the loan amount. The government dipped into taxpayer’s money to stop worsening of the situation. Today although the economy is limping towards recovery, the impact of the recession continues to haunt the nation.

Tony Evans of Wall is in his early sixties. He feels that the experience calls for stricter regulations. He said, “I’m sure there were a lot of people hurt deeply. A lot of people lost their jobs …for no reason at all. There should be a watchdog.”

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