Mortgage Market Updates

Mortgage rates popped up today, but not far. The rise came partly in normal protective selling in advance of a four-day weekend, including MLK and inauguration.

However, other upward pressures may be more durable. Refinance demand is overwhelming. Also, flight-to-quality buying of bonds abated when the stock market reinforced its November low, and upon signs of effective banking-system rescue by the Obamanauts. US rates are down here at two-and-a-quarter-century lows because we’re in trouble; when trouble recedes, rates will rise.

The handoff of executive authority from Bush to Obama began in disorderly fashion weeks ago, as the exhausted administration ceased to function. The dead end came last night, as the President expressed pride in “making the tough decisions.”

You can train a pigeon to make decisions. “Deciding” has no content; only quality counts. A few holdovers and unconfirmed appointees have begun the first competent action in a long time: the second round of TARP has been released at the urging and detailed assurances of Larry Summers, still on Harvard’s payroll.

Sheila Bair, who will continue at the FDIC, told CNBC this morning that work is underway to deal with troubled assets in the banking system. A questioner snapped, Don’t we already have that? “No.” She then described several crisis-containment measures that should have started 18 months ago. She did not state what will soon be clear: the $700 billion TARP is at least a trillion short. Maybe two.

Tim Geithner’s nomination to Treasury might have been torpedoed by two minor tax-filing errors. However, even Congress knows we’re in so much trouble that trivial entertainment no longer deserves a priority. We need this man.

Perfesser Bernanke on Tuesday laid out toxic-asset policy on the same line as Bair: good-bank bad-bank, asset guarantees, or other extraction. Most important: “In the future, financial firms of any type whose failure would pose a systemic risk must accept especially close regulatory scrutiny of their risk-taking.” Very, very well done. A global, electronic, 24/7, acutely inter-dependent financial system cannot rest on market-discipline dominoes. We are stuck with too-big-to-fail, and must adapt to that reality.

For all our faith in Obama’s pragmatic whizz-bangs, we have no idea how long it will take to reform the financial system. The depth of decadence revealed this week at Citi, Bank of America, and Merrill is beyond imagination.

Robert Rubin, previously second-only-to-Hamilton Treasury Secretary, slithered quietly away from the wreckage of Citi; his $17-million-per-year winnings intact, no accountability whatever for encouraging Citi to increase its risk-taking to ruin. After three rounds of bailout and guarantee, Citi is a $2.2 trillion basket case, a ward of the state, the great financial supermarket to be dismembered.

BofA’s CEO, Ken Lewis, has for years worked to turn it into a Citi, most recently via the dubious acquisition of disgraced Countrywide, and last in his scramble to buy long-coveted Merrill in September -- $44 billion for a firm minutes from following Lehman to the guillotine. Merrill’s John Thain, presumed straight arrow, has since expected his many-million bonus, in largest part for finding an idiot to buy the firm.

The world learned yesterday that Lewis had no idea that Merrill’s loss was too deep to absorb (despite two years of attempted acquisition), and that Thain either did not know or did not tell. Hence Paulson’s last act, gratia Dei: $110 billion to BofA to make sure that Merrill stays acquired and BofA survives. Now we own two supermarkets.

No matter how able the Obamanauts, we’re not going to get anywhere until these imperial CEOs, their co-conspirators, and especially their boards of directors face public disgrace. There will be no end to decadence until there is a personal price for undermining our society for the sake of ego, transcending mere greed. Remove these people, and forbid them ever again to lead or sit on the board of a public institution.

Economic Notes is published weekly by the Economics Department of Crestline Mortgage a division of Universal Lending Corporation as a service to Colorado Real Estate professionals. © 2009, all rights reserved.