Bloomberg Bernanke Says Crisis Damage Likely to Be Long-Lasting

April 17 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the collapse of U.S. lending will probably cause “long-lasting” damage to home prices, household wealth and borrowers’ credit scores.

“One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be,” the Fed chairman said today in a speech at the central bank’s community affairs conference in Washington. “The damage from this turn in the credit cycle -- in terms of lost wealth, lost homes, and blemished credit histories -- is likely to be long-lasting.”

The U.S. central bank has cut the benchmark lending rate to as low as zero and taken unprecedented steps to stem the credit crisis through direct support of consumer finance and mortgage lending. The Fed plans to purchase as much as $1.25 trillion in agency mortgage-backed securities this year to support the housing market and is providing financing for securities backed by loans to consumers and small businesses.

‘Onerous’ Restrictions
“We should not attempt to impose restrictions on credit providers so onerous that they prevent the development of new products and services in the future,” Bernanke said. Regulations should ensure “innovations are sufficiently transparent and understandable to allow consumer choice to drive good market outcomes.”

‘Right Direction’
“The Fed is walking in the right direction on a number of issues, and it has opened doors for real action,” said Jim Carr, chief operating officer at the National Community Reinvestment Coalition, an association of non-profit organizations dedicated to improving financial services. “But we are still waiting for more aggressive enforcement.”

Unemployment rose to 8.5 percent in March, the highest since 1983. U.S. home prices fell 8.2 percent in 2008, according to the Federal Housing Finance Agency. Household net worth fell $11.2 trillion in 2008, according to Fed data.

Homeownership Rates
U.S. homeownership rates fell to 67.5 percent in the fourth quarter of 2008 from 68.9 percent in the same quarter of 2006, according to U.S. Census Bureau data. Black homeownership rates have fallen to 46.8 percent from 48.2 percent in the same period, and Hispanic homeownership stood at 48.6 versus 49.5 percent. more...