Hey, it’s a great bumper sticker quote, but it’s also REALITY. It’s time that we, as Americans, get OUTRAGED. To be honest and up front with you all, I am what most would consider a die-hard Democrat. Spending money=Yay! right? Well I have complained about this particular ‘phenomenon’ before, and here I am again. Take a look at this: http://www.newyorkfed.org/markets/mbs/index.html
To put this in terms we can all understand, the Federal Reserve MBS Purchase Program has WASTED (that’s right, WASTED!) 621 BILLION dollars since the beginning of the year, and will WASTE approximately $640 BILLION more. Now, why should this anger us all? Well for one thing, it’s 10 times as much as our annual Federal education budget- in SIX MONTHS. That ticks me off. But to put this bluntly, the Fed is ‘Pissing in the wind’. Can I say that? I guess we’ll find out.
Let me explain- What is the money being used for? To purchase Mortgage Backed Securities, which in my not-so-humble opinion should not even exist. Period. See, the Fed thought that buying the MBS would drive rates down and provide stability. It has done everything BUT. We have seen more volatility, and more wild swings than ever. Instead of letting the market take it’s course, the Fed has decided to print up some fake money to buy some fake pieces of paper to accomplish what exactly? Sorry, but letting investors determine mortgage rates is like asking Michael Jackson’s monkey to run the rides at Neverland. BAD IDEA. Did Michael Jackson die by the way? They keep playing his music on the radio….
Back to the seriousness- Can we do anything about this travesty? Probably not. But the next time you get into an argument over how our government spends money, just remember the Fed is printing 1.25 TRILLION fake dollars this year to stuff in the pockets of moronic investors. If someone could explain to me why it’s a good idea to have mortgage rates determined by a bunch of fickle numbskulls, I’d really like to know. Bring it on.
IF YOU ARE NOT OUTRAGED, YOU ARE NOT PAYING ATTENTION.
In my next blog, I’ll explain why haggling for a ‘rate’ is a complete waste of time.
Last 5 posts in Mortgage Rates
- Fed Phases Out...oh, never mind. - February 10th, 2010
- Employment Situation Looks Bleak - January 8th, 2010
- Mortgage Rates in Review...and a Look Ahead - December 30th, 2009
- Upward Pressure on Mortgage Rates..... - December 22nd, 2009
- Want some insight into where rates are going? - December 17th, 2009
- Stumble it!
- Categories: Mortgage Rates
Comments
18 Comments so far
David
You are asleep at the wheel. You should have long ago reached the level of ‘rage’ in regard to the way the financial affairs of the Country and States of the USA are managed. When did you start paying attention?
Jennifer Monastero
About three years ago I determined that A) Our government is run by idiots who honestly do not care about anything and B) Our economy is driven by fake money, credit and DEBT. Instead of making assumptions, why not try to engage in intelligent conversations?
Oh, and thanks for the comment!
Dan Young
Since you are a Democrat I have to assume you voted for the socialist SOB who is running this economy into the dirt. I guess the 5% unemployment and economic growth we had for 8 years under Bush is looking pretty good right about now don’t you think? Don’t forget the last two years of the Bush White House had a Democrat controlled congress and Barney Franks was the guy who decided to loosen the loan requirements so that low income people(translation, formerly unqualified buyers)could buy a house. Hope you enjoy the change!
Jennifer Monastero
Incorrect assumption Dan, but thanks for making the point that a President can change our economy in six months, after 8 years of non-stop ‘growth’. Sorry, don’t buy it. Don’t you ever get sick of the two-party, corporate controlled drivel you are spoon fed? Try thinking outside the box. Try turning off your radio.
If you read anything I write, here or on the mortgage threads, you would know how I feel about this ‘blame game’ of who caused the mortgage crisis. If you want to blame Barney Frank (who gives people with speech impediments everywhere some hope of running for public office), by all means, do so. Perhaps you cannot handle the complexities of the real reasons we are in the state we are in. It’s not one-man, one-party, or even one LAW that got us here. It is, and always will be, the paper tiger economy that the ruling corporate class has created. We are pawns, and you are a very obedient one it seems.
Jennifer Monastero
And thanks to both David and Dan for mentioning anything in regards to the topic at hand. $1.25 TRILLION wasted dollars, and up next, we’ll hear about how Bill Clinton is to blame for the mortgage crisis.
Brian Brady
Jennifer,
Consider the alternative argument. Had the Fed not COMMITTED to the MBS purchase program, we might have seen mortgage rates that were 100-200 bp higher than they are today.
Markets react to leadership; the mere PRESENCE of the MBS purchase commitment might have led market participants to be buyers at a certain yield, thereby providing a floor for the market and an artificial ceiling for mortgage rates. It was referred to as Bernanke’s “Hammer”, earlier this year.
Education wasn’t compromised by the Fed’s action; the Fed’s balance sheet is mutually exclusive of the Treasury budget. What this Fed action did however, was to “print money” which may be inflationary
Arguing against the MBS market is arguing for higher consumer costs, by the way. Securitization has been the single best cost-reduction strategy for residential real estate finance. That argument isn’t necessarily bad but it is what it is.
Now, having presented the alternative argument, I will say that I agree that the MBS purchase program was a huge overreaction. The Fed action, along with all of the government meddling the Bush/Obama Administration has done, will leave economic scars, from which it may take decades to unwind. This recession and financial crisis, while severe, gave both Bush and Obama an opportunity to loot this economy.
I have an interesting question for you to consider; why not disband the Fed and FDIC? Privately-run banks, with no blanket of government protection, will draw heavy scrutiny from its depositors and shareholders. If you argue for market forces to act independently of gov’t meddling, you might want to go “all in” with that idea.
Jennifer Monastero
Brian-
And what if rates were higher? What is the catastrophic event the Fed was trying to help us avoid? Were they worried that somehow higher rates would mean that people would stop buying and refinancing? What exactly is wrong with that?
Markets SHOULD react to nothing but tangible evidence- not ‘presence’, not ‘innuendo’, not ‘candid remarks from a Congressman’. Don’t you think that our financial systems should be more stable and solid and not given to the whims of fickle numbskulls? Doesn’t it bother you that we sit watching day traders push and pull the market, when we should be out quoting rates and doing our jobs?
I did not say the education system was affected. I just find it amusing that the Fed, who “creates” all of our wealth, can somehow WASTE 1.25 trillion dollars on this garbage. You are correct in that this does not affect our federal budget in the slightest, but it is representative of our fake economy. And it is fake, you have to admit that.
Also, wouldn’t you agree that housing PRICES are more of an issue than slightly higher rates? If prices were at sustainable and reasonable levels, people could afford to either pay a higher rate, OR save up to put larger down payments on homes. The frenzy that was manufactured by these bankers has done us how much good? Really Brian, think about this. How much GOOD did the consistent lowering of rates and credit standards do for our economy???
As for your last point, I would say yes, as long as there is a safe credit union I can put my money in!
And thanks for the comment.
Brian Brady
1- Agreed. The Fed action was designed to churn houses and loans.
2- Markets always react to innuendo and rumor, regardless of stability but I hear ya.
3-Gotchya- good observation
4- Yep. If the gov’t stays out of these markets (mortgage and real estate), prices will come down to levels in line with incomes.
5- Agreed
Julie Messina, CMB
Jennifer,
I would be interested in where you think liquidity to fund loans should come from (if not Mortgage Backed Securities). Strong opinions are fine as long as you have an alterative solution. I’ve sat on the capital markets desk for over two centuries, and trust me, plenty of people have tried to come up with a better idea.
Jennifer Monastero
Julie- what did the world do before MBS came on the scene?
In my opinion, and this is a radical idea, banks/mortgage companies should lend according to assets/available funds. Yes, that means they will be able to lend LESS. Not a bad idea.
Also, how old are you exactly?
Brian Brady
“In my opinion, and this is a radical idea, banks/mortgage companies should lend according to assets/available funds.”
If you’re going to go that direction, then you’ll want to do away with fractional banking altogether and only loan on available deposits. That would crash the world’s economy.
Securitization is just a logical progression of fractional banking. When a false sense of security (gov’t safety net) is introduced, it encourages reckless risk
Julie Messina, CMB
MBS Securitization started in 1914 when the government introduced war bonds (even before fannie, freddie, and FHA). Although my entry into the mortgage business was in 1979 (answer to your question about my age), you could learn a lot by studying our industry and history. The FHA was introduced by our government in 1934, Fannie Mae was created in 1938, and Freddie Mac in 1970 - all securitiation vehicles. These Agencies were created to standardize underwriting guidelines and spread capital to parts of our country that did not have access to housing finance.
Banks do not get all thier mortgage money from depositors, it comes from secondary market investors who securitize loans. Check with the CFO or Secondary Marketing Manager at your company. You might be servicing them, but the liquidity comes from somewhere else.
Jennifer Monastero
Julie- My question about your age was in jest and due to you stating you had worked the CM desk for two centuries. I was going to ask you if you had discovered the Elixir of Life.
I understand how things work- my idea was about how things SHOULD work. I also know that MBS trading did not REALLY take hold until fairly recently. Meaning- within the last decade. 1914? MBS trading? I don’t think so.
And again, all you are proving is that our economy is indeed run on credit and debt. I think third-world countries should all follow our lead and print as much money as they need to finance their people’s dreams, AKA, debt-ridden lifestyles.
Julie Messina, CMB
MBS trading has been going on long before you were born.
http://www.fanniemae.com/aboutfm/charter.jhtml?p=About+Fannie+Mae
Please have a little respect for the securitization engine that feeds your paycheck. I am out here trying to improve consumer education and the value of securitized product to fixed income investors. It does not help when the young people in our industry make statements without studying our history. And, I hope you are not going to tell me that all your loans close in 3-4 days and your company is exempt from the due dilligence and fraud monitoring that the rest of us are doing now to provide transparency and credit quality.
Are you living debt free or do you have a car payment? Yes, our economy is run on debt and credit - basic economics. Debt is a personal choice and the amount of leverage an individual has is a matter of self control. Too much of it you crash and burn. Use your passion for the good of our industry and get the facts first.
Brian Brady
“Julie- what did the world do before MBS came on the scene?”
Watch “It’s A Wonderful Life”. What the MBS market did was to democratize residential housing capital so that the small town “Mr. Potters” couldn’t corner the housing market by controlling capital.
Jennifer Monastero
Again, Julie, when did MBS trading REALLY take off? You can’t honestly say it has always been this way. Also, since I am a ‘young person’ that apparently does not care about history- how about staying in the present with me for a moment? Do you feel that the Fed’s actions have done ANYTHING beneficial for the American public? Do you think that we should NOT be outraged at the printing of 1.25 TRILLION dollars for a failed experiment in market control? As Brian states above, this action is probably quite inflationary. Where is the anger and frustration? Why do people just shrug their shoulders and say ‘eh, it’s just the way it is.’????
Brian Brady
“MBS Securitization started in 1914 when the government introduced war bonds (even before fannie, freddie, and FHA)”
Technically, that’s incorrect. War bonds were issued in the Civil War (by both sovereigns), and were direct obligations of the issuer. They were “earmarked” to be repaid from reparations.
The Federal Land Bank issued short-term debentures, “collateralized” by the income derived from direct loans to farmers, in 1917. From 1938-1968, Fannie was the only secondary market, guaranteeing and buying FHA and VA loans. Those loans weren’t technically securitized but collateralized (and guaranteed by the Treasury)
“Again, Julie, when did MBS trading REALLY take off?”
In 1968, FNMA went private (sort of) and spun off GNMA, which starting issuing pass-through certificates. The idea was to create off-balance sheet financing for S&Ls. The first “private label” MBS was issued in 1977, by Solomon Bros and BofA.
The TRA of 1986 helped establish specific guarantees by removing pass-through incentives, to lose money holding MBS but the engine didn’t start revving until the late 80s/early 90s. The RTC bonds were a quasi-securitization and its success fueled the boom. We started packaging boat loans , credit card receivables, court settlements…anything with a cash-flow.
Even then it was all logical. I think the real problems started when we started issuing CDS and “insuring” the performance of those bonds. It wasn’t the leverage that killed us, it was the leverage on the leverage.
Brian Brady
“guaranteeing and buying FHA and VA loans”
MISTAKE: should read “insuring and buying FHA and VA loans”