Marc's Mortgage Matter's

I got very excited yesterday, and I think "my ship has finally come in". I received an e-mail saying that I had won the “Spanish El Gordo” lottery with a prize of one million pesetas, even though Spain uses the Euro. I knew it was for real since it said, “REFERENCE NUMBER: FCB/09/001, BATCH NUMBER: 2009/430/SPELG”, and then had some Spanish sentences. Very official. There was no way it was fake, but since I know that you can’t always trust the internet, I sent them my social security number and driver’s license numbers via mail instead of over the net.


Given the lack of economic news, yesterday’s focus was on Fed President Ben Bernanke. Not only did his testimony begin yesterday, but the Wall Street Journal published a column written by him in the morning. The column discussed “The Fed's Exit Strategy”, which immediately drew criticism from analysts who feel that it is too early to discuss an exit strategy. One has to wonder about that, given that there are many who believe that the stock market performance over the last few weeks is evidence that the worst is over. “The depth and breadth of the global recession has required a highly accommodative monetary policy…the Federal Reserve has reduced the interest-rate target for overnight lending between banks (the federal-funds rate) nearly to zero, greatly expanded the size of the Fed’s balance sheet through purchases of longer-term securities and through targeted lending programs aimed at restarting the flow of credit. These actions have softened the economic impact of the financial crisis. They have also improved the functioning of key credit markets, including the markets for interbank lending, commercial paper, consumer and small-business credit, and residential mortgages. My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road…”


During his testimony, the market absorbed statements like “tentative signs of stabilization”, “keeping rates low for an extended period of time”, “financial conditions remain stressed”, “housing decline appears to have moderated”, “record budget deficits may begin to pose a threat to the economy”, and “doubt on fiscal sustainability may hurt recover”. (Remember that confidence and trust are critical to any recovery.) Generally speaking, the markets see no substantial change from the Fed’s current policies as they “stay the course”. The federal funds rate will likely remain near zero for an extended period of time, the possibility, granted by Congress, to pay interest rates on the balances held at the central bank by depository institutions. (Paying more on those reserves would likely push up market rates.) In addition, the Fed could drain liquidity from the system through reverse repurchase agreements, selling securities from the central bank's portfolio with an agreement to buy them back later, and obviously could also sell the central bank’s holdings of long-term maturities outright.

Sometimes I think that computers are great, other times not. Over the weekend I went to Costco, where they always pass your card over the reader prior to ringing up your purchases. By the time I was through the line, and about ready to buy my Dad his obligatory lunch hot dog and soda, a customer service rep with a clipboard approached me. He said, “Excuse me sir, I see that you’ve been a member for about a year, and that you’ve spent $---- at Costco during that time. Do you know that if you’d signed up for the Executive Membership, you would qualify for a rebate of $---?” Obviously they, and other stores if you use a membership number or credit card, can track every purchase you make. I almost expected the Costco guy to say, “And I notice that you’ve bought the 24-pack of donuts the last 3 times… did you see our special on exercise equipment on aisle 8?”