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Congress, Fed tackle sub-prime meltdown

Steve Henn Jun 14, 2007

SCOTT JAGOW: Seems everybody wants to find a solution to the problems in sub-prime lending. Today, it’s the Federal Reserve’s turn. The Fed’s holding a hearing the growing number foreclosures. Marketplace’s Steve Henn reports.

STEVE HENN: The real estate bubble has burst — now Congress and the Federal Reserve are under pressure to clean up the mess.

Alys Cohen is an attorney at the National Consumer Law Center. She believes the Fed failed to intervene while deceptive brokers lured thousands into mortgages they couldn’t afford. Now many of those families are defaulting.

ALYS COHEN: Communities are being gutting and everyone is standing by. If someone doesn’t do something soon, it is going to be irreparable.

Consumer advocates are pressuring the Fed to stop deceptive lending practices, while members of Congress are encouraging banks to give troubled borrowers a second chance.

But many hedge funds were looking to profit from the collapse of the sub-prime market. They bought insurance policies that pay off when sub-prime borrowers default.

Hedge Fund managers worry about Washington’s interference. If banks bail out too many troubled borrowers, their insurance policies won’t pay off.

In Washington, I’m Steve Henn for Marketplace.

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