What’s another $800 billion anyways?
November 26th, 2008 Categories: Real Estate News, San Diego County Community News, San Diego county Real Estate News
“The Bush administration is embracing an old adage when it comes to its financial rescue plan: Try, try again.”-www.dailycamera.com, 11/13/2008*
SAN DIEGO– Yesterday mortgage rates dropped a whopping .29% and are currently averaging nationally at 5.81% according to bankrate.com. What caused this drop, the largest single day drop in 7 years, is dejavu.
Remember back in October when congress approved $700 billion dollars for the Treasury to use to help the financial markets? The acronym for the program is TARP and this stands for Troubled Assets Relief Program. They came up with this name because purchasing troubled mortgage assets from certain financial institutions was the plan to save the day.
Well it took only a couple weeks for the Treasury Secretary to change the game plan, some speculate this change of heart happened before the plan was approved, and decided that the solution was to buy stocks in certain banks in order to get them more capital. This new capital would in turn inspire them to start lending money again.
But Paulson said the administration had decided that the original focus of the bailout program — the purchase of distressed mortgage-backed securities and other troubled assets on the books of banks — would not be employed. He said the administration had changed the emphasis because of a need to get money into the financial system much more quickly because of a worsening credit crunch. Setting up a purchase program for the bad assets was taking too much time, officials said.*
Unfortunately, all this seemed to do was keep interest rates high, spur talk 
at the bank level of being able to pay bonuses and allow the bank to hoard their money to make it through the coming financial storm.
So, the reason for yesterday’s deep drop of interest rates was somewhat of a surprise and shock to me. That reason, the Federal Reserve decided to spend $600 billion of its own money to buy, wait for it……… MORTGAGE ASSETS!!! DEJAVU!!!
U.S. mortgage rates plunged by the most in at least seven years yesterday as a Federal Reserve pledge to buy $600 billion of debt succeeded where seven cuts in the central bank’s benchmark rate had failed. -Bloomberg.com, November, 26,2008
This new $600 billion in bailout dollars is part of an $800 billion dollar program that will be operated by the Federal Reserve board which does not need congressional approval for this money or its use. In case you are not keeping score we the taxpayers are now on the hook for $1.5 TRILLION dollars in bailout money.
So in October congress gave the Treasury $700 billion to purchase mortgage related assets in hopes of helping our housing market. Three 
weeks later Treasury Secretary decided this isn’t the solution and not practical. So in keeping with government practice, if it didn’t make sense in October, it must work in November. Yes, we are having the FED do essentially what the Treasury decided would not work!! And guess what? It did exactly what buying stocks bank did not do and that’s lower interest rates and spur hope for a workable tool in fixing the housing market.
This is what should have been done by Treasury when it got the [$700 billion] Troubled Assets Relief Program(TARP) approved in early October,” said Vincent Reinhart, a former senior economist at the Fed who is now a scholar at the American Enterprise Institute for Public Policy Research. Instead, he said, Treasury got distracted by its program to infuse capital into banks.
“As markets deteriorated, the capital that Treasury put in the front door leaked out the backdoor,” Mr. Reinhart said.-Washington Times, 11/26/2008
Aye Carumba.
