Legal Commentary

The neighborhood of Shady Groves was shocked this morning when it learned that the Lemon family was going to slip into bankruptcy based on massive mortgage debt.  Although the Lemons' financial troubles were well known throughout the neighborhood, the community expected the Federal Reserve to step in to save the family with last-minute financing.  Instead, the family will now be forced to declare bankrupcty and will likely lose their home.

"We all figured they were too big to fail," said Helga Humphrey, who lives next door to the Lemons.  "They are the only four-bedroom house on this block.   I can't believe Bernanke let this happen."

The community was particularly surprised that the Fed failed to step in after it had helped save the home of the Smith family just a few months ago.  In March, the Fed provided an emergency loan to the Smiths and helped them restructure their mortgage by guaranteeing their debt.  Ultimately, the Smiths were forced to move from their neighborhood, but they avoided bankruptcy.

However, Fed watchers are not surprised by the Reserve's tougher stance.  Analysts predicted that the Fed did not want the Smith bailout to be seen as a precedent.  President George W. Bush has also signaled that the government would not continued to bail out Shady Groves residents, saying only that "we are working to reduce disruptions and minimize the impact of the Lemons' difficulties on the rest of Shady Groves."

This tough talk did not sit well with Shady Groves residents.  "It's clear we're one step away from a financial meltdown," said Ariel Hamer, a neighbor of the Smiths.  "Can't they see that we need emergency funding to prevent a global crisis?"

The news for Shady Groves was not all bad, however.  The Fed did announce that it would be opening its discount window to Shady Grove homeowners.  Many are looking forward to shoring up their financial positions, especially in light of their adjustable-rate mortgages.  "You know, I'm thinking of getting an emergency loan to help with that kitchen addition we've been considering," said J.P. Grable.  "I think it will really help the neighborhood's confidence to see new construction taking place in this economic climate."