Fed chairman Bernanke, Bush launch subprime attack

The US Federal Reserve Board (Fed) has reassured investors it would take any steps needed to shelter the economy from a global credit squeeze, while President George W Bush has promised to help struggling homeowners refinance their mortgages. Fed chairman Ben Bernanke also said the central bank would not bail out investors who had made mistakes, but overall his comments reinforced the view that the Fed would cut interest rates by a quarter percentage point at its meeting on September 18.

Bush urged lenders to work with homeowners to renegotiate their mortgages to prevent default and called on Congress to approve legislation that would provide mortgage insurance to borrowers through a network of private sector lenders. “It’s very light on detail and limited in scope,” Jeff Schappe, chief investment officer at BB&T Asset Management in Raleigh, North Carolina, said of Bush’s proposal. “The important news today is that Bernanke is saying the Fed is going to do whatever it will take to limit the impact.”

Rising default rates on home loans to less credit-worthy US borrowers, coupled with falling house prices, have caused losses for banks and funds holding mortgage-linked securities in recent months and fostered the worst global credit and liquidity squeeze in a decade.