Okay, Rep Maxine Waters made an error. She mistook the fed's discount rate-- the rate at which the federal reserve loans money to banks-- for the fed funds rate -- the rate at which banks loan money to one another.

The fed funds rate directly affects mortgage interest rates, while the discount rate may have only an indirect affect.

The fed has kept the discount rate low to help prop up American banks. As a member of the House Committee on Financial Services, Waters should know the difference. It seems that she made a simple mistake and confused one rate for the other, but criticism of Waters, even those calling her "dumb" and charging that the exchange between her and Fed Chairman Ben Bernanke proves the case for term limits, is too much.

First of all, although the discount rate may not directly affect mortgage interest rates, it may do so indirectly. If investors see that the discount rate is raised, they may take it as a precursor for higher interest rates in the future and a change in the lending environment.



According to the Associated Press:

The central bank said the step should not be seen as a signal that it will soon boost interest rates for consumers and businesses. It repeated its pledge to keep such rates at record-low levels for an "extended period" to foster the economic recovery..... T.J. Marta, a market strategist, said he thinks higher rates for American borrowers are still months away. But "I think one man's normalization is another man's tightening," he said of investors' initial anxiety.

So Waters' question about the potential impact on mortgage rates was not dumb.

Second, and most important, Waters was expressing concern for the millions of Americans stuck with adjustable-rate mortgages given out like candy during the freewheeling economic boom. Many are stuck with loans for far more than their homes are now worth.

If the mortgage rate increases, many of those with adjustable rates will see their payments jump dramatically. The high unemployment rate, combined with larger mortgage payments, will undoubtedly increase the number of people who default on their loans.

It is those people -- many of them disproportionately minorities -- that Waters is standing up for.

A 2007 study from Harvard's Joint Center for Housing Studies found that 46 percent of Latinos and 55 percent of African Americans received subprime mortgages in 2005, compared with 17 percent of whites. A 2007 study from the National Community Reinvestment Coalition found that middle- and- upper-income African Americans were twice as likely to receive higher interest rates as whites with similar incomes.

"This crisis is heavily concentrated among people of color. The subprime meltdown is really a meltdown of minority homeownership, minority wealth and minority communities," said Waters at a forum on the subprime crisis in New York City last year

Despite her error in terminology, at least Waters is concerned about those who still face difficult times ahead.

That's not dumb, that's her job