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Thread: Why is the Fed concentrating on the Housing/Mortgage market?

  1. #1
    The latest effort by the Fed to pump up the money supply and to create jobs is targeting the real estate, home ownership, and mortgage market.

    The Fed will be buying mortgage backed bonds to move record mortgage rates even lower as a way to boost consumer demand for housing which should help increase sales of furniture, appliances, and create construction jobs.

    The move will also help bring some relief to the foreclosure crisis.

    But why just tackle mortgage rates?

    I think a lot of economic stimulus would be achieved if interest rates on credit cards were capped, and if the old usury limits on credit cards returned.

    I can't understand how our elected representatives allowed the banks to wipe out usury laws so that they could raise interest rates on cards to 30% or even higher?

    And 30% interest and even 18% interest makes no sense when deposits earn 1% or less at banks.

    If the government really wants to spur spending and increase consumer confidence, then cap interest rates and give consumers a chance to spend.

    Today, even if you have good credit, you could be hit with interest from the moment you charge a purchase with some credit cards. And if you carry a balance you are probably very familiar with interest rates of 25% or higher -- which years ago were illegal and only the mob's loansharks could charge that much.

    Today, the banks and the mob seem to be charging the same interest.
    Last edited by Alan Mendelson; 09-13-2012 at 07:24 PM.

  2. #2
    An argument can be made that capping interest rates on consumer credit would only serve as an economic dampener. Some of the high interest charged on credit cards act as a built-in "risk premium" to offset possible delinquency risks for the banks. If rates were capped, banks would issue fewer credit cards to customers with less than stellar credit histories, fewer goods become bought off those cards, and the economy slows even further. Maintaining the Wild West atmosphere of high interest rates to customers of varying credit histories is generally the best way to 'juice' the economy as long as large 'caveat emptor!' warnings about high interest charges remain on credit card statements (as now being required by law).

    On a separate note, Bernanke seriously has his hands tied and he absolutely needs to keep interest rates ultra-low for as long as possible or the U.S will face a horrible fiscal disaster. Can you imagine how ruinous higher interest charges will be to the country's yearly income when struggling to pay higher interest rates on $16 trillion in national debt? On top of this nasty issue, the Fed's assets being purchased as a result of all these QE's would decline in value as interest rates rise.

    One of the smartest guys in the room predicted QE 3 as inevitable way back in June 2011 (link to article with full explanation):

    http://finance.yahoo.com/blogs/daily...105819637.html

    Very precarious situation and Congress needs to do more to solve this problem. The Fed is already out on a limb trying to save everybody's butt as it is...

  3. #3
    So, it's OK to bail out homeowners with government subsidized mortgage financing and with tax breaks on short sales, but it's a bad idea to lower the interest rates on other consumers who don't own a home but got into trouble with their credit cards? Is that what you are saying, Count Room??

  4. #4
    Originally Posted by Alan Mendelson View Post
    So, it's OK to bail out homeowners with government subsidized mortgage financing and with tax breaks on short sales, but it's a bad idea to lower the interest rates on other consumers who don't own a home but got into trouble with their credit cards? Is that what you are saying, Count Room??
    Count Room cries out, "Yes Alan, let them eat cake!" from the secure confines of his gated community while the seething, unwashed throngs of peasants await outside with torches and pitchforks.

  5. #5
    Unfortunately, that is exactly what is going on. Homebuyers get subsidized by government: tax breaks, subsized loans, even bail outs on short sales and government refinance plans. Who gets bailed out? The "buyers" who could not afford what they bought and in many cases took advantage of a system that let them buy homes they could not afford.

    Not being helped: consumers who use plastic. No bail out for them. And to make matters worse, the government catered to the big bankers by removing the usury limits on credit card interest rates.

    The politician who says cap interest rates again will get my vote.

  6. #6
    You are a great writer. Please keep it up!
    Las vegas movers

  7. #7
    Thank you for joining us boljohn12. Since you are in the moving business, you have a lot at stake in the housing business. Do you think the Fed is taking the right actions? I know the Vegas market has been hit hard and even though sales and prices are starting to pick up, the Vegas housing market is still in very poor shape. What are your ideas?

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