Unintended consequences

Bailout Plan Drives Up Mortgage Rates

“As we have noted often, in tightly coupled systems like our modern financial regime, efforts to contain risk typically make matters worse. As Richard Bookstaber explained in his Demon of Our Own Design, there are two reasons for this phenomenon. First is that processes move through a series of steps that cannot be interrupted, so certain interventions are impossible short of shutting down the entire system (or a fundamental redesign). Second is that any intervention cannot be localized. It inevitably produces other effects that are at best unintended, and generally not neutral. “

US mortgage rates have soared this week in an unexpected reaction to the latest Treasury financial rescue plan, which has prompted investors to buy bank debt and sell bonds backed by home loans.

“Fannie and Freddie had been taken into conservatorship by their regulator to help keep mortgage rates low and – it was hoped – revive the housing market.

“However, the opposite is now happening, making it more difficult for struggling homeowners to refinance their mortgages and for prospective homebuyers to get financing. As a result, house prices may fall further before they find a bottom.”

[naked capitalism]

Oopsy.

Historic Central Bank Agencies Divestment in 2nd Week

“Paulson has blessed many additional American financial institutions with de facto GSE status, diluting the financing advantage traditionally enjoyed by the real GSEs like Fannie and Freddie.”

[Housing Doom]

Oopsy.

The Fraudacity Of American Finance

“John Mack yesterday in a CNBC interview said that the capital deployed by Treasury into the banks was going to rebuild their capital ratios – not be lent out. In other words, they intend to hoard it.

“This means, bluntly, that not one nickel of benefit will be seen by Main Street, despite claims by Paulson, Bush and others that this bailout is necessary for ‘Main Street, not Wall Street.’ ”

“Liars.”

[The Market Ticker]

Told ya.

Banks borrow record $437.5 billion per day from Fed

“NEW YORK (Reuters) – Financial institutions ran to their lender of last resort for record amounts of cash in the latest week, under extreme pressure from the worst global financial crisis in a generation, Federal Reserve data showed on Thursday.

“Banks and dealers’ overall direct borrowings from the Fed averaged a record $437.53 billion per day in the week ended October 15, topping the previous week’s $420.16 billion per day.”

[Reuters]

Boggle.


“Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion–when you see that in order to produce, you need to obtain permission from men who produce nothing–when you see that money is flowing to those who deal, not in goods, but in favors–when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed.”

-Ayn Rand, Atlas Shrugged (We’re looking at you, Al Greenspank)

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