Mortgaging for Our Future
Finally the U.S. Administration and the Federal Reserve have done a big thing right by announcing they would spend more than half a trillion dollars buying up mortgages to help lower mortgage interest rates.
The Treasury and our central bank shouldn't stop there. With 30-year Treasurys yielding little more than 3.5%, there's no reason that long-term fixed-rate mortgages shouldn't go below 5%. Such a cut would do wonders to revitalize our badly hit economy. Homeowners would soon rush to refinance existing mortgages. That alone would promptly put a bottom to the housing market and, in fact, start to increase the value of housing assets. Moreover, beleaguered homeowners would suddenly find that they had more money to spend, thanks to lower monthly payments, and that they once again owned an appreciating asset. This, combined with lower gasoline and heating fuel costs, would start the recuperative process.
Banks, too, would benefit from the fees for refinancings. They would relearn a rusty art: how to do financial transactions.
Only two pieces remain undone before things can start truly moving forward. First, Washington should emphatically suspend the incredibly destructive mark-to-market rule, which takes no account of the long-term life of an asset and has horrifically damaged financial institution balance sheets. The insurance industry is still not out of the woods on this one. Second, the SEC should immediately restore the uptick rule on short-selling. This would play a material role in stopping the debilitating Depression-style bear raids against banks, insurance companies and retailers.
Steve Forbes is President/CEO of Forbes and Editor-in-Chief of Forbes magazine
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