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New rules ‘must keep sub-prime market open’

SPRINGFIELD (ILLINOIS) – LAWMAKERS must not be too heavy-handed as they react to the collapse of the United States sub-prime mortgage market and end up closing this source of credit forever, a senior Federal Reserve policymaker said yesterday.

St Louis Fed president William Poole said the sub-prime market was now basically shut and might never reopen if the regulatory backlash were too onerous.

‘The public policy problem is the danger that, with the sad record of so many mistakes and abuses in recent years, regulatory burdens to end the abuses will do so, but only at the cost of making sub-prime lending so costly and risky to lenders that they will have no interest in restoring this market,’ he said.

Mr Poole, who retires from the Fed at the end of this month, did not directly address the economic outlook, but stressed the housing market’s problems have been costly.

Source: REUTERS, BLOOMBERG NEWS (The Straits Times 8 Mar 08)

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