Mortgage Market Updates

The Fed’s announcement of extraordinary intervention triggered ordinary responses in the markets: stocks had a nice moment; inflation mono-maniacs blew up gold and oil, and ran from the dollar; the 10-year T-note dropped from 2.95% to 2.52% in seconds; and briefly mortgages made it to 4.75% without fee.

All are reversing. The net mortgage gain: the plague of origination fees since December may give way, but rates are where they were, just under 5.00%, propped by unlimited demand. If the response has been tepid, did the Fed do the right thing? Absolutely. More, please (per Pimco’s Bill Gross, we need double or triple).

Here’s the problem: for more than a year, the markets have seen the Fed as the only branch of government responding to a first-class economic emergency. No matter what the Fed does, it cannot put out the fire by itself. It must have help from all engines of government, and from us. It still does not have that help.

Last year our government appeared disabled at the top, an exhausted and dysfunctional Presidency not in the game, creating policy vacuum and forcing the Fed Chairman and Treasury Secretary into public leadership roles beyond their means.

Incredibly, we still suffer from a void at the top -- very different in kind, but not result. From election day well past the inaugural, Mr. Obama appears to have given top priority to a new budget reordering social priorities. Without a sound economy, there is no money for healthcare or carbon or anything.

Without overriding priority, the clarity that only the President can bring, Congress is in normal fibrillation but with a virulent additive: the people are confused, frightened, angry, in pain, and want retribution but don’t know whom to strike. Democratic government is a mirror of the people, and in Congress we are getting who we are.

Specifics. To call this financial team a beached whale is an insult to whales and beaches. And it’s not their fault -- Geithner has been left out to dry on the sand just as badly as Hapless Hank Paulson. It is the President’s duty to display and to insist on a sense of urgency, and to explain to the people the predicament, and the plans of the administration -- if not formed, when they will be formed. We have none of that.

Showing up, glowing and funny on Jay Leno is appropriate for another time. Same for running Perfesser Bernanke out on 60 Minutes (... A new Depression? “I think we’ve averted that risk.” ...We’re out of the woods? “No.”). Larry Summers’ sudden leap into the public breach in the last week, with nothing to say... shades of Baghdad.

Substance. We still have no urgent effort to regulate credit default swaps, no comprehensive exchange for these super-toxic vectors. Fannie and Freddie are still paralyzed, their unspeakable Bush-crony regulator, James B. Lockhart III, still in place. Examiners have descended on regional and community banks: “Go ahead, make a loan. See what happens. Make my day.”

The people. The national rage at AIG bonuses reflects our dangerous mood, and also says we have no idea what is important. If Congress follows us to wild-swinging punishment, it will freeze efforts at repair. The bonuses are too small to matter, within the range of accounting error, and another 650,000 people lost their jobs last week.

The President should provide a proper target for national anger, and simultaneously identify the greatest failure in our system: boards of directors. These people, hauling down a quarter-million a year and options, had two duties: protect stockholders, and ride herd on CEOs. Mr. Obama, read into a camera the names of AIG’s directors. Denounce them and shun them, forbid them ever again to serve on the board of a public company. Then the names at Citi, Merrill, Bear, Lehman, WaMu, Countrywide....

One benefit beyond public venting: the names reveal the depth of our trouble. AIG’s directors included Martin Feldstein, brilliant economist; William Cohen, Senator (R., Maine) and Secretary of Defense; Richard Holbrooke, top foreign policy advisor in this and prior administrations.... Make boards accountable, or lose the game.

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.