"They borrowed more than they could afford, took risks they were unable to bear or entered into agreements they did not understand," said Plosser delivering a speech in Blue Bell, Pennsylvania on education and economic prosperity.
BLUE BELL, Pennsylvania (Reuters) - The current economic environment shows the need for improved financial literacy since many homeowners have fallen prey to abusive lending practices in the recent subprime debacle, Federal Reserve Bank of Philadelphia President Charles Plosser said on Wednesday.
"They borrowed more than they could afford, took risks they were unable to bear or entered into agreements they did not understand," said Plosser delivering a speech in Blue Bell, Pennsylvania on education and economic prosperity.
"In making these choices they were sometimes misled by abusive lending practices that rendered the terms and conditions of the loan agreements they signed far from transparent," he added.
However, Plosser also said that the growth of the subprime mortgage market and the process of securitization had made homeownership possible for more families than would have been the case otherwise.
!ADVERTISEMENT!Still, he noted that the effects of the unraveling of the subprime market had spread throughout the financial system, which along with rising oil prices, has helped to undermine the economic outlook.
"On the financial stability front, problems in the subprime mortgage market eventually spilled over to other markets and resulted in more widespread impairment of the effective functioning of financial markets," he said.
Plosser noted that the Fed had since taken steps to improve market liquidity and backed a bailout of U.S. investment bank Bear Stearns <BSC.N>.
"All of these actions fall under the central bank's responsibility for ensuring financial stability," Plosser said.
(Editing by Gary Crosse)
