In a surprise move, the Fed decided on Wednesday to implement their often talked about plan to beÂcome a direct purchaser of long-term securities.Â Amongst other things, they are devoting 750 billion more dollars toward buying mortgage-backed securities over the next few months.
Translation:Â The Fed has pulled out the biggest gun it has toward keeping mortgage rates down and is now using it liberally.
The message to the markets is clear: Ben Bernanke and the Federal Reserve will pump in as much cash as it takes to end our current recession, regardless of the long-term consequences.Â The positive side of this is that mortgage rates will be manually forced down for a short period of time.Â We should see fixed rates on 30 year mortgages drop decisively into the 4’s over the course of the next couple of weeks.Â The negative side of this is that creating $1,200,000,000,000 out of thin air devalues the dollar and our international economic preeminence.Â
Yes.Â Eleven zeroes after a one and a two.Â It’s a lot.Â Bill Gates can’t even imagine that much money.
But let there be no confusion.Â This is a no holds barred move on the Fed’s part.Â Ben Bernanke, our fearless Federal Reserve Chairman and resident expert on the Great Depression, would rather be known as the man who went too far rather than the man who didn’t go far enough.Â I hope he’s right.
So between this lowering of rates and the $8000 dollar for dollar tax credit to first time homebuyers, Uncle Sam has pretty much said he’ll do anything short of dressing up like a clown to get you to buy a house.Â That is because we need the housing market working again to fix the banks who fund the busiÂnesses who create the JOBS.Â So, seriously, go buy a house.Â It’s the American thing to do.
I know.Â I’m ripping off the car dealerships slogans to prove a point.
As if the Madoff pyramid scheme fiasco wasn’t enough, AIG has proven to us once again how despiÂcable some financial institutions can be by paying out 165 million dollars in executive bonuses to their financial services division.Â You heard right: $165,000,000 to the folks who single-handedly trashed your economy.Â Historically, any high-ranking official who performed as poorly as these guys did were usually guillotined, not rewarded.Â Well, since everyone who can spell AIG has been driven into a blind fury by the incident, Congress decided to use the opportunity to look good.Â So, they are voting to tax those bonuses by upwards of 90%.
If you can’t block â€˜em, tax â€˜em.Â Works for me.