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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