The consolidation of power from the private sector to the government has created confusion for the marketplace and is hurting the housing industry.
How is it hurting, you ask? Simple, no one knows what the hell is going on.
And if you think this is just my opinion, think again. This is the opinion of Federal Reserve Governor Elizabeth Duke.
She says:
The government placed the companies into conservatorship during financial market turmoil last year and has had to pump tens of billions of dollars into them to prop them up.
“Whatever is the ultimate future for Fannie and Freddie, market participants will need to see a clear roadmap for both the individual institutions and the role of government in housing finance before private markets can begin to map a course for themselves,” she said. via Reuters
Here is a simple rule. Banks and markets need to see what is going on before they take risks. If they have confidence that certain things are going to happen, even bad things, then they can price that in and sell products.
But here is the kicker, when the markets or banks are not sure what is happening, they do nothing. They sit on the sidelines until things make sense.
With the turmoil in Washington and the ever changing course of both the Federal Government and particularly for housing, Freddie Mac and Fannie Mae, no one knows what the hell is going on.
Think about it, we are looking at on a Federal level a brand new healthcare system, Cap and Trade with carbon, an exploding debt, new environmental regulations, and with housing and finance, the potential of a slower economy and higher inflation.
Do you really think banks are going to make 30 year loans into this environment unless the borrower is gold plated? Are they going to take a risk? I don’t think so. They are going to hunker down.
And what is crazy is that even if the worst case situation occurs, rising interest rates, inflation, higher taxation, and a more expensive healthcare system occurs, that is good news.
It is good news because the bankers then know what the rules are. They can price the risk and make the loans. And the market can get moving.
Until then we will wallow. Thank you Federal Reserve Governor Elizabeth Duke for stating the obvious, you are one of the first in a position of power to do so in a long time.
No related posts.
