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Fed Official Says Subprime Mess Hasn't Hurt Economy









Source: USA TODAY
Publication date: August 3, 2007


By Barbara Hagenbaugh
WASHINGTON -- Although subprime lending has caused pain for individual homeowners, it has not hurt the U.S. economy, a Federal Reserve official said Thursday as lawmakers questioned if the Fed should have done something to try to prevent the subprime problems from building.

"The real economy does not yet seem to be affected by this," Federal Reserve Governor Randall Kroszner told members of the Senate Banking Committee who were hearing from nominees to the Fed.

One of the nominees said earlier action from the Fed could have prevented some of the subprime problems.

"If the Fed had acted somewhat earlier, we might have had a better outcome," said Larry Klane, 47, president for global financial services at Capital One.

Kroszner's comments about subprime and the economy echoed recent statements from other Fed officials, including Chairman Ben Bernanke. Still, lawmakers said they were concerned that problems with subprime mortgages -- home loans made to borrowers with impaired or limited credit histories -- posed a serious threat.

"This is a looming economic issue," Banking Committee Chairman Sen. Christopher Dodd, D-Conn., said, noting that home foreclosures could lead to falling home values in communities. "I can't go anywhere without this issue being raised."