An Easy Government Solution to the Crisis?

Bennet Sedacca  Jan 14, 2009 3:15 pm

An Easy Government Solution to the Crisis?
 
A modest proposal to clear housing inventory.
 

 

Instead of playing this carry-trade game -- selling bills at 0.1%, buying 10s at 2.25%, and buying mortgage-backed securities in an effort to artificially put a bid under the market, why not do the following:

As I've been pointing out for years now, you can put capital into the market, you can inject TARP funds into banks (and get ready for more of that), but you can't force someone to seek credit.

Which explains why all of these shenanigans aren't working yet.



So why not sell $1 trillion in 10s with yields all the way up to 3.5%? Granted, selling a trillion bonds would move the market - but there's lots of wiggle room with a beginning level of 2.25%.

So the 300 or so mortgage lenders that have folded up could be replaced with... Uncle Sam's Mortgage Company.

Uncle Sam then turns around and sells 4% mortgages (undocumented liar loans without appraisals) and all sorts of flexibility? Granted, this would hurt the premium mortgages I own (although I've sold a lot lately into Uncle Sam's and the TARP money bid) - but it might get rid of some housing inventory.

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4 of 5 (80%) found this helpful
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Comments (8) See All Comments »
01-14-2009, 3:34 pm
Instead of Uncle Sam's Mortgage Company, guarantee a high interest rate payment for bank savings accounts (4% or more). This would cause the trillions of dollars sitting in money market funds to flow into the banks giving them a lot of liquidi
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01-14-2009, 3:36 pm
And let's not forget Uncle Sam's Derivative Exchange (financial mass destruction prevention)

10X World GDP in derivatives, some on book, many off
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01-14-2009, 5:03 pm
excellent, excellent idea. to all of the responsible people out there, they get to refinance at 4.0%. that half point spread between 3.5 and 4.0% should cover non-payment or foreclosures (if they keep the strict borrowing rules in place), and every
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01-14-2009, 8:40 pm
All of these bailouts and tax cut ideas are premised on the idea that we can go back to the 'good ole days' of perpetual consumption without moderation.

By the time the Fed starts playing around down at the zero interest mark
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03-04-2009, 10:13 am
Better make that only on houses built before 2009 so that you don't encourage new construction, adding to the supply side at the same time as you are increasing demand? :))
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