Bernanke Cites Tight Lending Rules as Drag on Economy

Nov 16, 2012 9:09am

Morning Business Memo:

From no-doc loans to the other extreme? Federal Reserve Chairman Ben Bernanke says banks’ overly tight lending standards might be holding back the U.S. economy by preventing creditworthy borrowers from buying homes. Bernanke says some tightening of credit standards was needed after the 2008 financial crisis. But he says “the pendulum has swung too far the other way.” He says some qualified borrowers are being prevented from getting home loans.

Hostess Brands, the maker of Twinkies and Wonder Bread, says it is winding down operations, and has filed a motion in U.S. Bankruptcy Court. The company is seeking permission to close its business and sell its assets. Bakery operations have been suspended at all Hostess plants. The move follows a nationwide strike called by the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union. “Hostess Brands will move promptly to lay off most of its 18,500 member workforce,” the company’s CEO says. The liquidation of Hostess involves the closure of 33 bakeries, more than 560 distribution centers and 570 bakery outlet stores across the country.

Many investors have zero faith that President Obama and leaders of Congress will make progress soon on the “fiscal cliff.” The Dow Jones index has lost 5 percent of its value since the election, and much of this is because of rising concern about the effect on the economy from a sudden round of tax hikes and government spending cuts. Unless there’s an agreement, the changes will be triggered Jan. 1. “They talk the talk but so far nobody’s convinced they’re going to walk the walk,” says Adam Levin, chairman of credit.com. “There’s just so much posturing going on it’s like playing a game of chicken,” Levin says. Without signs of an early compromise, the approach of the fiscal cliff could lead to a new recession early next year. No compromise to avoid the fiscal cliff “will cause a terrible erosion of world confidence and investor confidence in this country,”  he says. That could also drag down consumer confidence during the holiday shopping season.

Hurricane Sandy has turned out to be much more than a public relations disaster for LIPA, the embattled utility that serves part of the New York City region. The firm’s financial future may be threatened. The Wall Street Journal reports The Long Island Power Authority is facing more than $800 million in damages from the big storm, according to utility executives. LIPA has been widely criticized for its response to the devastating storm.

Richard Davies Business Correspondent ABC NEWS Radio ABCNews.com twitter.com/daviesabc

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