Here We Go Again?

Another hectic Monday on the bond market; today was not so much a flight to safety as it was Wall Street trying to paint the Fed into a corner and force them to lower interest rates. See Jim Jubaks article about forcing the fed to act here:

http://articles.moneycentral.msn.com/Investing/JubaksJournal/FedWallStreetArePlayingChicken.aspx.

Then you have the proposal by U.S. Treasury’s Henry Paulson to help put a freeze on the rate changes for millions of American’s facing rate hikes on their adjustable rate mortgages:

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20071203&id=7888024.

Any time someone mentions the challenges facing homeowners and their ability to handle their mortgage payments Wall Street jumps on that as the reason why the Fed needs to step in.

What am I missing here? Who created this mess? Wasn’t it Wall Street that took all these high risk loans and split them up into various mortgage backed securities and promised great returns with little risk? See the following:

http://www.stroock.com/SiteFiles/Pub533.pdf

So now Wall Street is trying to force the Fed into saving them by lowering short term rates which will make it easier for the banks to carry the loses or hide them by borrowing money to cover the shorts while they work to get the loans moved off of their books or into another larger block of securities to offset the poor performing ones. We could sit back and watch our entire economy crumble if the Fed calls Wall Streets bluff and holds rates steady. But then if the Fed lowers rates and the major investors stop buying our securities and invest their money overseas and in other opportunites, our ability to continue growing our debt; (The U.S. national debt is expanding by about $1.4 billion a day -- or nearly $1 million a minute) will cease and then we will see our economy fail. Ben Bernanke walks a fine line as we move into this next year which is an election year.

I hate to be the bearer of bad timings as we enter the Holiday season, but my only advice as of now is try to take advantage of the falling rates. We may not see these rates again for many years if ever in our lifetimes!

For questions or comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824