April 29, 2008 - Any investor looking to the Fed to bail out current credit problems is looking at part of the answer. The Fed can only do so much. It can lower interest rates. It can add money to the economy. But that isn't going to be enough to cure all the bad mortgages or delinquent credit card payments. And if the Fed adds too much money to the economy, it feeds inflation. The Fed needs help from Congress and the President and mostly business, particularly the banks and thrifts that made the loans.

Solutions include lowering the interest rate on mortgage and credit loans, especially the ones that were made with "teaser" rates, very low rates initially, that are now adjusting to market rate or higher interest rates. Many who qualified at the teaser rate level, can't pay the market rates. Lenders need to keep these loans as low as possible. By doing that, they may incur losses or make small profits. Either way, they're better off than having empty houses and no payments.

Another solution: lower the rates on existing, higher rate mortgages, adjustable and fixed. Again, this will eat into profits, but it's better to make small profits than large losses from selling empty homes.

There are some things Congress and the President can do to help. They can lower business taxes to free up money to hire more people. More people employed means more wages to spend in all parts of the economy, including housing. And the good news is that when taxes are cut, revenues to the government go up. That's a solution where everyone wins.

This credit problem is too big for the Fed to correct on its own. It doesn't have enough tools. While it contributed mightily to the problem by growing the money supply and lowering rates in the early part of this decade, it's ultimately the lenders who have to shoulder the blame. They made the loans. They need to fix them. They shouldn't expect the Fed to bail them out. Or the taxpayer. That wouldn't be right.

- Ted Allrich