If you didn't catch our Federal Reserve Chairman Ben Bernanke speech the other day, you should really take a look. As a casual Fed watcher, it has become apparent to me that we have a completely inept chairman at the helm.

Chairman Bernanke said the following:

But the current housing difficulties differ from those in the past, largely because of the pervasiveness of negative equity positions.  With low or negative equity, as I have mentioned, a stressed borrower has less ability (because there is no home equity to tap) and less financial incentive to try to remain in the home.  In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.

Lenders tell us that they are reluctant to write down principal.  They say that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again.  Moreover, were house prices instead to rise subsequently, the lender would not share in the gains.  In an environment of falling house prices, however, whether a reduction in the interest rate is preferable to a principal writedown is not immediately clear.  Both types of modification involve a concession of payments, are susceptible to additional pressures to write down again, and result in the same payments to the lender if the mortgage pays to maturity.  The fact that most mortgages terminate before maturity either by prepayment or default may favor an interest rate reduction.  However, as I have noted, when the mortgage is “under water,” a reduction in principal may increase the expected payoff by reducing the risk of default and foreclosure. 

How cool is that?! I wonder if the federal government will start requiring my current and future debts to be discounted or relieved right after I incur the debt. Imagine the possibilities….. I can go and buy a Mercedes Benz for the price of a Ford or I can run up my credit cards, ask for forgiveness and give someone else the bill.

Mr. Bernanke, this is one of the most irresponsible, thoughtless, government run-a-muck ideas that I have seen in my lifetime. Whatever happened to individual responsibility, working hard, living within one's means and having an overall sense of accomplishment? Oh, one thing that is worth mentioning….. who will be paying for all the immediate equity? My guess is the banks will seek to make up the difference somehow for those overnight losses.