Fed’s High Wire Inflation Fighting Effort Risks Triggering a Recessionary Fall

Imagine a high-wire act performed without a net.  That describes the Federal Reserve’s effort to curb inflation without crashing the economy.  Success will bring applause and relief; failure, a brief downturn, at best, with a prolonged recession the worst case outcome. 

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Vowing to recover “every single dime the American people are owed,” President Barack Obama announced that his Administration will collect up to $117 billion from the nation’s largest banks over the next 12 years to cover losses from the government-funded rescue of the financial industry.

The Congressional session will resume this month pretty much where it ended before the holiday recess, with lawmakers trying to decide how to reshape the financial regulatory structure. 

As signs of the times go, this recent headline in the New York Times Sunday magazine could not have been a welcome one for mortgage lenders: “Just Walk Away.” That’s the advice contributing writer Roger Lowenstein offered to homeowners with under water mortgages, telling those who are able to make their mortgage payments that it may not be in their financial self-interest not to do so.

Turning a largely but not entirely deaf ear to warnings about over-regulating the financial industry, the House of Representatives has approved sweeping changes in the oversight of financial institutions.