Mortgage Meltdown.
Any one that saw Jim Cramer’s heartfelt rant Friday afternoon on CNBC had to know something was wrong. Mr. Cramer who is normally upbeat and humorous was anything but. He is genuinely concerned and fearful that millions of people are going to lose their homes and likened the Fed’s seeming lack of concern to that of President Hoover’s attitude as the Great Depression loomed.
The market had endured another whipsaw week, with the averages doing quick turnarounds after 3:30 Wednesday and Thursday. The interesting thing was that virtually no one took solace in these upturns. In fact both rallies were viewed with skepticism bordering on disbelief. The news was so bad, no one really had faith that the rallies were real and Friday proved they weren’t.
A top officer from Bear Stearns, after stating that their firm was well positioned to ride out the storm relating to the collapse of their two mortgage based Hedge Funds, followed with the bombshell that the “… market was the worst I’ve seen in 22 years.” This was part of the impudence of Jim’s tirade, but only part.
The bigger concern was that our situation could spin out of control. Rates on 30 year Jumbo loans (fixed rate, 30 year loans over $400,000) had jumped from 6.88% to 8.00% Friday afternoon. This is simply unheard of. This also occurred on a day when the 10 year note fell from 4.77% to 4.69%, a movement that would normally cause rates to fall.
The normally upbeat and confident Rick Santelli, CNBC’s Bond Pit analyst made a comment to the effect that the average homeowner whose home is on the market is not going to get what his neighbor got a year ago and this is contributing to the sluggishness of the housing market.
Something has to be done and the Fed has the power to do it. Their incredible laser like focus on inflation is ridiculous in the context of what is going on. Except for the truly wealthy, most average folks are infinitely more fearful of losing their homes and livelihoods than a minor up tick in inflation. This obsession with inflation is pandering to the rich who can afford to take a lower assured rate of return on safe government bonds. Most of us are just trying to survive.