Mortgage Rates- The week in Review

Mortgage and Lending with Chase

Long-term rates are holding lows nicely, the 10-year T-note near 3.20%, and lowest-fee mortgages just under 5.00%.
New data tilts to slowdown. The Philly Fed index surprised on the downside, half its forecast; new unemployment claims rose (might be BPs gift to the Gulf); single-family housing starts and permits fell off cliffs, 17.2% and 5.9% respectively; and core CPI rose only point-one percent. Manufacturing has been the only strength, industrial production gradually crawling out of a hole, but still 7.9% below 2007.
Europe continues to stumble on the way to wherever it is going, all sovereign bond spreads there widening versus German bonds. A quiet run.
A plague has descended onto this land, and its name is "No Taxpayer Bailout!"
This illness is related to a few other fatal rashes and fevers of modern democracy, but nothing beats NTB! for decadence.
When some huge part of the economy needs to be bailed for the common good, there isn't anyone else out there but taxpayers. In small disasters there is somebody else. Example: BP will probably have enough assets and future income to pay for most of its blowout damage, but even in that case, higher costs from new controls on drilling will be paid by taxpayers.
Another somebody-else example: deposit insurance has been funded by a levy on banks since 1933. Two problems. The banks, of course, pay the fee by means of lower interest to savers and higher costs to borrowers. Deadlier: a big enough bank run will overwhelm the FDIC, or any fund that banks themselves can raise.
The origin of NTB! in recent usage: the "S&L Bailout" of the late 1980s was decried as a raid on the taxpayer. Nevermind that all of the stockholders were wiped out, as were most of the officers and directors, and the FSLIC fund, and the ONLY people bailed out were the depositors, who did not lose a dime. Oddly enough, nearly all depositors are taxpayers. And vice-versa. Just as in the disaster in progress now.
"Decadence" is a nasty word requiring justification to those who think their hard-earned tax money is being wasted. When a rescue is obviously necessary, ask a nearby NTB!, "Whom else do you have in mind? Non-taxpayers? The poor? Pets? The French?" The most common response is "Government should do it (Grrrrr)."
Government doesn't have any money. Government only has money if somebody pays taxes, or if it borrows; and if it borrows, somebody sure as hell better pay taxes.
Which leads to the expectation of the modern voter-taxpayer that somebody else will pay the taxes. I will pay taxes to fund the spending that I want, but somebody else has to pay taxes for the stuff that I don't want. I don't want to borrow, so I won't pay taxes to pay interest. Certainly not principal. Somebody else.
Then there is government "guarantee." Student loans, veterans' benefits, Social Security. And contingent guarantees: if the FDIC runs out of money, government will guarantee all deposits. If a series of hurricanes bankrupts Federal flood insurance, government will guarantee. Nothing stands behind the Federal Reserve Note in your wallet except the nation's willingness to pay taxes.
Europe is trying to save the euro by deploying a $900 billion fund to pick up bad bonds issued by Club Med. However, the fund is nothing but a pile of guarantees by governments that don't have enough tax revenue as it is. Guarantee is meaningless if given by a government with neither the will to levy taxes, nor to cut spending.
"Government guarantee" sounds so powerful that people always play along, until they realize (late, always late...) that in the end nothing is guaranteed except, "Will you take a check?"  The end hastens when too many taxpayers lose faith in other taxpayers, and force our representatives to tell us what we want to hear.
If pandering leapfrog codifies NTB! into law, at the onset of the next great financial FUBAR, you will have forbidden yourselves to save you.

Comments (3)

Team Honeycutt
Allen Tate - Concord, NC

Rates are looking good! I need to find some buyers to get on it!

Jun 18, 2010 08:18 AM
Carol West
Carol West Real Estate, LLC - Hillsboro, OR
Real Estate Agent, Hillsboro, Beaverton, Portland

Well, this too shall pass. Into what, we can only guess.

Carol West, Broker


Jun 18, 2010 08:34 AM
Bill Laundon
Apex Cary Insurance - Fuquay Varina, NC

Craig- That is a hideous downward spiral that you accurately describe. The solution for us taxpayers is to CHANGE out this Government! WE need to step up today & agree to pay higher taxes or (preferably) cut Federal Government programs in order to get us out of this mess. Our current representatives in the Executive branch as well as the House & Senate have shown they will continue to vote based on party & PAC whims. Let's vote them all out -Republican and Democrat- & start over.

Let's stop party politics, because we, the taxpayers, are paying for their parties & we do not even get invited!

Jun 18, 2010 09:16 AM