It started at the pump, not the mortgage shop...



And now it is headed toward your wallet and your savings. Ben Bernanke (FED Chairman) announced yesterday (03/11/2008) that our central bank in conjunction with several of the worlds central banks will be pooling together to inject 200 billion dollars into some of our nations struggling lenders in exchange for souring mortgage backed securities.


The Stock Market rallied yesterday and ended in the best session that Wall Street has seen since 2002. The market loved the announcement and sent the market soaring throughout the day. Unfortunately what I think many people are overlooking is that even if the FED's position works and lenders are able to produce paper that performs, the paper that the FED is holding is still souring. Banks are being let off the hook as the FED takes on the risk. Banks are now given the right to write the souring mortgage backed securities OFF of their books. 

I know that everyones initial reaction is that this is a great and wonderful plan that our FED has devised to get us out of the mess that our government has gotten us into.



So whats the problem then?

The problem is that the debt and risk that comes along with it that the FED is trading for perfectly good American dollars is not worth the paper that its written on. The risk associated with the souring debt that the FED is trading up the greenback for is now going from faltering mortgage lenders into the hands of our central bank. Our nations economic engine is trading places with investors who made very, very bad decisions based on miscalculations of the strengths and weaknesses of the markets. Markets crash and that is a fact of life, markets also typically correct themselves, it is a matter of give and sway.

This move by the FED Will drive the value of the dollar further down as the debt that they are swapping continues to sour in their hands. That means that it doesn't matter how much money we have, we can't buy as much with it. Everything from gas to food and everything in between is increasing in cost at a rate in which our incomes cannot keep pace.

Historically as stock markets crash the bond market steps up and offers shelter to those bearish investors not willing to take extreme risk. As the bond markets advance and most specifically the 10 Year Treasury Bond; mortgage rates decrease.


Who to blame?

Well, everyone seems to be blaming mortgage professionals. The truth is that just as markets crash, bubbles burst. The stock market did not do too hot for a couple of years after 9/11, mortgage rates plummeted and home values inflated. The market wasn't doing too hot, but everyones home had a big flashing ATM sign on the roof and the housing market carried the economy. considering the rate at which home values inflated and mortgage rates dropped it is no wonder that we are in this mess, what goes up must come down... Very simple logic to me.

Now it is the FED who is making the decision to take the nations money and stake it on a gamble... who will be to blame for the fallout of this gamble if it doesn't work out. Right now the odds are against us, and I think when reality sets in this will be viewed as a very big mistake... Or it will be swept under the rug.


Either way, my recommendation to you is "Be very careful with your finances!" And if you need real estate financing expertise... Please consult with an expert first!