Withdrawal Pangs

Today's "Socialist" Housing Market

Nice summary (below) of the challenges facing the housing market in the years -- and decades -- ahead.

After the last 18 months, arguably the same issue is confronting the banking system, the auto industry, the installment credit (credit card) market, the commercial paper market, etc.

Government officials generally agree that it would be better for private lenders to resume their traditional role as major providers of finance for home loans. But policymakers now face some tough choices. They must decide how to reduce support for the mortgage market without letting it collapse. And they must decide what kind of support the government should provide in the long run.

--"Mortgage Market Bound By Major U.S. Role"; The Washington Post

P.S.: Against creeping socialism? Consider this: according to the Post, nearly 90(!) percent of all new home loans are now funded or guaranteed by taxpayers.

TARP as Ultimate Sting?

TARP Mystery . . . Solved!

OK, it's taken me almost a year to puzzle out, but I think I've finally got it:

Superficially, the hundreds of billions in TARP money handed over to the financial sector's worst actors only looks like a stupendous reward for failure -- and not a little like ransom money, paid to keep the rest of the economy from cratering.

Ah, but that's only appearances.

What the TARP money really is . . . shhh! . . . is a super-sophisticated government sting, brilliantly designed to smoke out and then nab society's greediest and sneakiest operators.

Follow the Money

Think of the TARP money as bait.

Sort of like what banks do when they put invisible dye on cash in tellers' drawers, so that they can catch robbers red-handed after-the-fact (actually, blue-handed). Or, if you want a more graphic (but apt) analogy, like the dye you ingest as part of a colonoscopy.

Once the plan is put in motion, you wait, and watch; then, as the malefactors convert the cash to their own, private benefit . . . you pounce! You confiscate the ill-gotten plunder, return it to its rightful owners (taxpayers), and apprehend the perpetrators.

Memo to government "handlers": any time now, guys . . .

P.S.: of course, even if all this were true, you'd expect Wall Street to beat the charges. Their likely defense? Entrapment. (EnTARPment?)

Mortgage Rate Disconnect

Dropping Mortgage Rates
Still "Artificially" High

Where should mortgage rates be right now? If historical relationships held, the rate on a 30 year mortgage would be 3.5%(!).

No, that's not a typo; going back a decade or more, long-term mortgages cost typically cost about 150 basis points more than the 10 year U.S. Treasury Bond yield. The yield on the latter now is barely over 2%.

An increasing number of commentators are joining the camp -- I've long been in it -- that closing that gap would do much to staunch the bleeding in the national housing market. In turn, stabilizing housing would do wonders for the broader economy.

In his blog post today, "Mortgage rates are still too high," economist and New York Times columnist Paul Krugman is only the latest to emphasize this link:

http://krugman.blogs.nytimes.com/2008/12/26/mortgage-rates-are-still-too-high/?hp

Lower rates have two, huge benefits: 1) they instantly increase prospective home buyers' purchasing power; and 2) they allow millions of existing homeowners to refinance, lowering their monthly payments and freeing up money for other things (like food, gas, and utility bills!).

The problem with mortgage rates, like almost everything else related to the credit markets, is that normal market mechanisms aren't working now. Instead, through its web of guarantees, bailouts, and cash infusions, the federal government is essentially deciding who can borrow, who can lend, and at what rates.

In such a command-and-control environment, the price of virtually everything credit-related could be said to be "artificial" (government-set), vs. market-determined.

If that's the case, Washington might as well "go all in" and make life easier for millions of American consumers -- not just Wall Street investment banks, too-big-to-fail insurers, automakers, etc.