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Nickelless
Administrator
USA
5580 Posts |
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horgad
1000+ Penny Miser Member
USA
1641 Posts |
 Posted - 10/30/2008 : 08:58:59
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Lately the mortgage rates have not been responding to rate cuts. The banks right now are borrowing at 1% and loaning out at about 6.75%-7.25%.
So the banks, in theory, could make a lot of money loaning out money right now and there is a lot of room for them to compete against each other by cutting rates and making the loan terms more attractive. However, they are all afraid of taking risks right now with their books in such a bad state.
So rates remain relatively high and terms and requirements remain quite strict (example no more 100% loans, most loans require 15% or 20% down). As a result, mortgage applications and approvals are very low.
What has surprised me is that the government has not directly intervened in mortgage market. The government could offer loans directly to the public at whatever terms will get the market moving again. Instead the government has been pushing money out to the banks hoping that the banks will loan it out and get things moving again, but the banks are just sitting on the money to help strengthen their books and/or using it to pay out bonuses.
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Edited by - horgad on 10/30/2008 09:02:43 |
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swusc
Penny Hoarding Member
USA
553 Posts |
Posted - 10/30/2008 : 11:50:21
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| Horgad, you are right that the government could do that, but they would then be on the hook for losses. People will start complain that so and so got a better rate and so on. Plus, if someone get denied then they would write their congressman to complain and such. I don't think Congress wants to open up that can of worms. |
`Everybody is ignorant. Only on different subjects.' Will Rogers
"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard." Alan Greenspan, 1966. |
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Ardent Listener
Administrator
USA
4841 Posts |
Posted - 10/30/2008 : 18:42:00
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| At one percent there isn't a lot of wiggle room left for further cuts. So what's the plan when the Fed. reaches 0%? |
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Think positive. |
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horgad
1000+ Penny Miser Member
USA
1641 Posts |
Posted - 10/31/2008 : 07:31:56
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quote:
Originally posted by Ardent Listener
At one percent there isn't a lot of wiggle room left for further cuts. So what's the plan when the Fed. reaches 0%?
Helicopter drops. The government will try more and more creative and aggressives ways to inflate until they find one one that works. Like I said I am surprised that the government hasn't started lending directly to consumers yet or directly controlling the loan terms by strong arming the banks. With them buying into banks and starting more bank oversight maybe that is exactly what they have in mind.
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Edited by - horgad on 10/31/2008 07:32:44 |
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swusc
Penny Hoarding Member
USA
553 Posts |
Posted - 10/31/2008 : 08:02:37
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quote:
Originally posted by Ardent Listener
At one percent there isn't a lot of wiggle room left for further cuts. So what's the plan when the Fed. reaches 0%?
That isn't really a problem. That is just the overnight rate. They can start moving out the yield curve and target those rates. You really don't have a problem until they get to the end of the yield curve. Then you are basically going to have to start playing in the corporate debt space (The overnight rate is done by buying US government debt).
-SWUSC |
`Everybody is ignorant. Only on different subjects.' Will Rogers
"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard." Alan Greenspan, 1966. |
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The Fed Rate Cut: How Soon Will It Affect You?
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