OK - I have three pages of notes, Ben says a lot in this conference to Community Bankers.  Ben Bernanke, the Federal Reserve head, talks about moral hazard.  Those of you who are my students (last term) and didn't know the definitions of moral hazard or adverse selection will not understand what Ben is saying.  If you are going to be in finance or insurance, you will HAVE to know these terms and understand their consequences.

Side note, I emailed my friend in Malaysia who works for AIG (AIA) and she just laughed.  All she does everyday is work with moral hazard and adverse selection issues! 

I will be brief:

1. Local house prices are falling (which will continue) and the inventory of unsold homes is increasing. 
2. Equity in many houses is very low - often negative (the current house price is below the mortgage value).
3. 40% of ARMS (adjustable rate mortgages) will reset from 8% to 9.25%!!!  HUGE!

So Ben says we need to use the FHA, modernize this government agency as well as use the GSEs!
(GSEs are Fannie Mae, Freddie Mac and Ginnie Mae).

That's the crux of the talk.

Here is the video (there are actually two) if you are interested.


I found a very avid counter argument:

"Nationalization of mortgages by the FHA" by Michael "Mish" Shedlock - freemarketeer.  While Mish's title is Bernanke Asks Taxpayers To Bail Out Banks, I found this title at the bottom of his article and believe it is more appropriate and really what his title speaks to! (No disrespect intended.)