Unlike with the recent Time Magazine story, this article from Page 1 of tomorrow’s Washington Post [1] grabs the right Vogel.
The complexity and linkages in the world financial system are to blame.
"Every action the government takes has cascading effects on the market, and they’re not always easy to predict," said Jim Vogel, an analyst at FTN Financial. "The government has to have time to catch up."
WaPo’s readers will have a good, lurid summary tomorrow detailing just how hairy the world’s financial system has become. Old time Doomers will appreciate Bill the Butcher comparing management of the system to a game of chess. But Jim Vogel’s later sketch of how recent bailout moves have pushed mortgage rates higher should enlighten both Washington and readers of Doom’s recent FRBNY H.4.1 summary. Here’s another key quote from the new WaPo article.
"A month ago, Fannie and Freddie were the unique beneficiaries of government support — so the mortgage costs fell in response, which is exactly what you would anticipate," Vogel said. "Since that time, mortgage securities no longer have the special position."
Although there have been other forces on mortgage rates — for example, many foreign governments have been selling Fannie and Freddie debt – analysts agree that the government’s new programs have had some role in boosting mortgage rates.
"This is, of course, bad news for the mortgage market — a critical factor in taking the U.S. out of the market panic and into a long-term recovery that puts a floor under residential prices," Federal Financial Analytics, a Washington research firm, said in a report this week.
Notes and References
[1]: "Financial Rescues Can Set Off New Problems", by Peter Whoriskey and Zachary A. Goldfarb, Washington Post, October 19, 2008.
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John-
Governments are taking a knee-jerk reaction to the financial markets, ignoring “moral hazard” and the “law of unintended consequences”. They are also looking for solutions to the mess by relying on the guys that caused it in the first place.
I’ve felt all along that the government should treat the financial crisis like one would a natural disaster. It cannot be prevented, you can only deal with the effects.
The bubble wasn’t just a housing bubble- we saw it in stocks and commodities as well. Nothing will prop it up, and it’s a waste of money to try. I would rather government recognize that we need to think about what that peoples of the earth are going to do for a living that lose their jobs in the asset bubbles and help us move to that new world. Instead they are squandering assets trying to fix the unfixable.
I can’t remember who said, “There is no situation so bad, that government cannot make it worse,” but he was spot on.