Wednesday, December 3, 2008

So let me get this straight: they are trying to artificially inflate home prices... AGAIN!?

Here are 2 articles for you to check out from the AP and the WSJ. In summary, the Treasury-via Fannie and Freddie-are planning to buy up/issue mortgages at an interest rate that less than banks are currently willing to lend at, and less than people are willing to pay. In addition, this is at a rate that is a mere 1% above the inflation that we have experienced in the last year-at the rate we are printing money, it will probably be less than inflation in the coming years.

It seems to me that mortgage originators are going to make out like bandits with all of this new business, while the community banks, which keep mortgages on their books-being the most honest form of banking-are the ones getting screwed since they can't compete with a segment of the banking industry that is essentially being subsidized by the government. You have to love artificial monopolies that use our taxes and destroy the value of our money!

What I don't understand, is why we are trying to play God by manipulating markets in such a way that is only going to screw them up more. After all, the Federal Reserve, Fannie, Freddie, and government lending laws created this whole problem. So really, it seems pretty dumb to not let the Treasury try their hand at 'fixing' things... Right?

I figure that the over all plan that the government is hatching is to make inflation such an issue that it will raise the price of everything. In turn, real estate prices stay as they are-being a real dollar loss, but a nominal stagnation-which feels better to lenders and homeowners a like.

As I tend to rant about, all of this comes at a cost, which David at the Bluegrass Policy Blog posted a link to. This bailout, as a whole is damned expensive. Check it out.


Miguel Barbosa said...

Hi Rangar,

I also don't understand why they are trying to manipulate the markets. The reality is average people are still having a hard time paying for homes even though they have been falling.

Great Post.
I have included it in our nightly value investing links at.

Best regards,

Miguel barbosa

Mark Perkins said...

I agree. what good did the government subsidizing home ownership do since it just helped create a mega bubble.