The Last Housing Crash Is Not Even Over But Bernanke Is Already Setting The Stage For The Next One
October 2nd, 2012
Federal Reserve Chairman Ben Bernanke is determined to push mortgage rates to record low levels and he is encouraging the banks that the Fed regulates to make home loans more freely. Wait a second – isn’t that exactly what caused the last housing bubble? After 9/11, the Federal Reserve slashed interest rates and this caused mortgage rates to steadily fall. Financial institutions were urged to help “expand home ownership” in America, and many of them started making home loans to people who never, ever should have gotten home loans. When mortgage rates started to go back up, millions of families with adjustable rate mortgages discovered that they could not make their monthly payments. Mortgage delinquencies absolutely soared and large numbers of mortgage-backed securities suddenly turned into garbage. So what is the Fed doing about it? The Fed recently announced another round of quantitative easing in which it will buy 40 billion dollars worth of these mortgage-backed securities a month. Essentially the Fed is clearing the bad financial paper out of the system and is creating the conditions for another housing bubble. But will we really fix our problems by going back and doing the same things that got us into trouble in the first place?
The following chart shows how interest rates on 30 year conventional mortgages have declined over the past 30 years. After 9/11, mortgage rates were pushed to ridiculously low levels and that helped create the mess that we are currently in.
So what did the Fed decide to do to fix things? They decided to push mortgage rates even lower….