There’s a lot of intelligent people on here. Discuss.
Real estate, not enough. The rest of the economy, maybe a little more effect though real estate is still going to pull things down overall. If you’re 4 months late on your payments and your house can’t appraise for nearly what you owe you screwed regardless of the fed rate. You can’t refi and no one can get approved for a loan to buy it from you. It’s like whizzing on a 5 alarm fire.
Like Rich said, it’s a bandaid on a bullet wound. Will make no difference at all.
I saw on another board where someone said, half jokingly, that it will make matters worse because now you’re going to see all the homeowners who were sitting on the sideline put their houses on the market, in anticipation of a horde of new buyers entering the market.
Yeah, it may help people that have ARM’s that haven’t adjusted yet. That’s true about issues with appraised value though. I bet banks will relax their tighter standards. They realize they can cash in huge on refi’s because of this. All they want are lots of origination fees. The big question is if investors will buy the paper.
I see it really hurting the value of the dollar. Inflation is going to go up. We have high commodity prices. We have low unemployment. It’s a recipe for inflation.
I have the misfortune of living in an area where the only major metropolitan newspaper is so saturated in liberal propaganda that it’s hard to read the facts from the agendas. Complaining isn’t seductive and I digress…
This morning the local newspaper had a front page story “FED Helps Borrowers With Deep Rate Cuts.” Asking a liberal what the economic environment is like is similar to asking Satan whether the front pew in church is comfortable. You might get an answer, but it will not be grounded in reality or experience.
NO. This rate cut will not help fixed 30 year loans. This rate cut will not affect LIBOR or US treasuries; in fact this rate cut could make smart money predict that inflation will occur. For the last several years, the FED has been very concerned with inflation. Energy prices are soaring, food prices are rising, and the value of the dollar is falling. Businesses are flush with cash, and even the housing slump has not stopped US consumers from getting credit cards and continuing to spend more than they save. Indeed, Bernanke in a recent press conference talked about emerging nations having a “savings glut” and the US having a seemingly endless appetite for capital. Many economists have stated that the FED’s role is not to protect the banks or consumers, and not even to protect the economy, but to protect the integrity of money; in other words, we cannot let the value of the dollar fall too low.
If this rate cut does anything to long term mortgage notes, it will make the rates go higher because we are going right back to the easy access to money that got us into this mess in the first place. Consumers might be duped again, but banks and mortgage lenders will not.
So for credit cards and auto loans and home equity lines of credit, the rate cut will mean relief. For Adjustable Rate Mortgages and 30 year fixed notes, this rate cut will not offer any foreseeable benefit.
OK, now I have to eat my words, the London interbank offered rate fell 0.35%.
I stand by my original prediction. The United States government, bussinesses and citizens are in debt 10.7 trillion dollars, according to the Treasury department. We owe the Japanese 800 billion, the Chinese 680 billion, and other foreign debtors include Russia, Saudi Arabia, Brazil, India and Thailand.
Now keep in mind that the “LIBOR” is the rate which banks ask other banks to pay for unsecured loans in the global financial market for short term borrowing and lending. The “twelve month average” of the annual yield in actively traded United States Treasury securities is the average monthly return over a year from the US government for money that the government borrows from investors.
When the Open Market Committee lowers the Federal Funds Rate (the rate the Fed charges banks to borrow federal money) you would think that banks would loan each other money for a lower price, right?
Well maybe.
If these foreign countries find better returns on their investment elsewhere, then they sell their treasury securities; they want their money back. The supply of money shrinks, and the willingness of banks to lend money to each other goes down.
The Federal Reserve can just print more money, but that devalues the dollar, which triggers inflation. So, the Fed fights that by tightening the money supply ergo raising the Federal Funds Rate.
In some ways, real estate is not tied to this. For example, it doesn’t matter how badly the Federal Government, the Fed or even banks want to bail people out of their subprime loans.
According to analysts at UBS AG, the largest bank in Switzerland, nearly half of the subprime borrowers would not qualify for Freddie Mac or Fannie Mae loans.
So the borrowers are at the mercy of private lenders. One Washington, DC based research investment group, called ISI, has concluded that over 25% of subprime defaults occur before the adjustable rates are recast.
These borrowers cannot afford the teaser rates, never mind the loan itself.
Private lenders then pay for the losses from subprime defaults with higher interest collected from borrowers who do not conform to Freddie Mac or Fannie Mae guidelines (less than 36% debt to income ratio, good credit, 80% loan to value notes, and loan amounts less than $417,000.
So, the best response to this post is: it depends upon whether subprime borrowers repay their loans, whether foreign countries can find a better return for their money (or develop consumerism similar to the US), and whether banks and borrowers learned anything from this mess (or face new mandates and regulations). My opinion is that the Fed perceived economic disaster if they did not take drastic action, and that lending rates will remain essentially unchanged.