Head of IMF Calls for Principal Reductions for American Homeowners
04/16/2012 By: Carrie Bay
The head of one of the world’s most powerful financial policy bodies has tossed her hat into the debate over mortgage principal reductions. Christine Lagarde, managing director of the International Monetary Fund (IMF), says “the housing problem in the U.S. is something that needs to be addressed” and it is “a matter of urgency.”
Speaking at the Brookings Institution in Washington D.C. late last week, Lagarde stressed the importance of debt restructuring in the context of a global financial crisis that threatened our very foundations, and inevitably, the conversation turned to the U.S. housing market- the type of internal debt restructuring that Lagarde wants to see being conducted with urgency, and the economic albatross hindering any sort of meaning recovery here in the states.
“This is something that the IMF has had a long-standing position on,” Lagarde said, referring to the absolute necessity that America’s housing issues command. She noted that measures have been taken in the U.S. to stem housing’s spillover effect.
“There are proposals made by the administration,” Lagarde acknowledged, tipping her hat to writing down the overvalued mortgage debt being carried by so many Americans. The problem, however, is that “the big boys and girls-Fannie and Freddie-have to be part of the equation,” according to Lagarde.
Edward DeMarco, the lone voice of opposition to lowering homeowners’ outstanding debt to align with current fair market values, has come under heavy pressure in recent weeks from the administration, members of Congress, and officials of its fellow housing regulatory agencies to permit the use of principal writedowns as one element of the GSEs’ workout hierarchy. Now, he’s feeling the public pressure from the leading governing body of the global financial community.
“[C]learly the American households have to be able to unload a bit, just in the way we’ve encouraged banks to
Speaking at the Brookings Institution in Washington D.C. late last week, Lagarde stressed the importance of debt restructuring in the context of a global financial crisis that threatened our very foundations, and inevitably, the conversation turned to the U.S. housing market- the type of internal debt restructuring that Lagarde wants to see being conducted with urgency, and the economic albatross hindering any sort of meaning recovery here in the states.
“This is something that the IMF has had a long-standing position on,” Lagarde said, referring to the absolute necessity that America’s housing issues command. She noted that measures have been taken in the U.S. to stem housing’s spillover effect.
“There are proposals made by the administration,” Lagarde acknowledged, tipping her hat to writing down the overvalued mortgage debt being carried by so many Americans. The problem, however, is that “the big boys and girls-Fannie and Freddie-have to be part of the equation,” according to Lagarde.
Edward DeMarco, the lone voice of opposition to lowering homeowners’ outstanding debt to align with current fair market values, has come under heavy pressure in recent weeks from the administration, members of Congress, and officials of its fellow housing regulatory agencies to permit the use of principal writedowns as one element of the GSEs’ workout hierarchy. Now, he’s feeling the public pressure from the leading governing body of the global financial community.
“[C]learly the American households have to be able to unload a bit, just in the way we’ve encouraged banks to
lend, well the households have to be helped to borrow so that consumption and appropriate indebtedness can be reinitiated. That’s our position,” Lagarde stated definitively.
Lagarde called on policymakers around the globe to take this “opportunity to push on and take the further actions that are certainly needed to keep the crisis at bay and finally put it behind us.” For the leaders of the United States, that means addressing the housing crisis head-on, Lagarde noted.
With the close knit ties of financial systems from continent to continent, it’s each country’s obligation to fix their own inherent issues and challenges so as not to be the one keeping its comrades from moving past the global financial crisis and on to more prosperous days.
“[W]e need financial systems that support-not destabilize-the economy,” Lagarde said. “This means repairing financial systems so they can deliver credit, growth, and jobs.
“This means better regulation and supervision, and coordination across countries, to prevent the recurrence of reckless risk-taking. And, it means getting the financial sector to pay its fair share. We dare not be complacent on financial sector reform. The mission has not been accomplished-the mission is still to be accomplished,” Lagarde stressed.
Lagarde shared with the audience that she still has a “very clear recollection of a decisive moment in 2008” when she realized there was a crisis and it was here, and she thought to herself, who is going to be able to deal with a financial crisis of this scope and scale, where our “financial interconnections actually brought the entire economy to the brinks,” she said.
“Only a few months ago, we seemed to be staring into the abyss,” Lagarde admitted. “More recently, some data have indicated that the United States may be beginning to turn the corner. Financial strains in Europe have eased somewhat since December. However, events of the past week remind us that markets remain volatile and that ‘turning the corner’ is never easy.”
Lagarde’s remarks at the Brookings Institution came just ahead of the meeting between finance officers from the Group of 20 nations, the IMF, and the World Bank, scheduled to convene in Washington, D.C. this week.
Her institution speech served as almost a rehearsal run for the message she seeks to convey to her sovereign bank cohorts: We have seen some improvement in the economic climate. But let me also underline this point: the risks remain high; the situation fragile
Lagarde called on policymakers around the globe to take this “opportunity to push on and take the further actions that are certainly needed to keep the crisis at bay and finally put it behind us.” For the leaders of the United States, that means addressing the housing crisis head-on, Lagarde noted.
With the close knit ties of financial systems from continent to continent, it’s each country’s obligation to fix their own inherent issues and challenges so as not to be the one keeping its comrades from moving past the global financial crisis and on to more prosperous days.
“[W]e need financial systems that support-not destabilize-the economy,” Lagarde said. “This means repairing financial systems so they can deliver credit, growth, and jobs.
“This means better regulation and supervision, and coordination across countries, to prevent the recurrence of reckless risk-taking. And, it means getting the financial sector to pay its fair share. We dare not be complacent on financial sector reform. The mission has not been accomplished-the mission is still to be accomplished,” Lagarde stressed.
Lagarde shared with the audience that she still has a “very clear recollection of a decisive moment in 2008” when she realized there was a crisis and it was here, and she thought to herself, who is going to be able to deal with a financial crisis of this scope and scale, where our “financial interconnections actually brought the entire economy to the brinks,” she said.
“Only a few months ago, we seemed to be staring into the abyss,” Lagarde admitted. “More recently, some data have indicated that the United States may be beginning to turn the corner. Financial strains in Europe have eased somewhat since December. However, events of the past week remind us that markets remain volatile and that ‘turning the corner’ is never easy.”
Lagarde’s remarks at the Brookings Institution came just ahead of the meeting between finance officers from the Group of 20 nations, the IMF, and the World Bank, scheduled to convene in Washington, D.C. this week.
Her institution speech served as almost a rehearsal run for the message she seeks to convey to her sovereign bank cohorts: We have seen some improvement in the economic climate. But let me also underline this point: the risks remain high; the situation fragile
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