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06/10/2012

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Why are people not spending and banks not lending? Because we are all scared that worse is going to come. That is really it. If we can find a way to incite confidence again, which can only be done if the economy finally turns around (in my humble and noneconomic schooled opinion), then people are going to start spending again. www.overstockcn.net

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What is th role of banks in a capitalist society? Primarily to foster the efficient exchange of money between lenders and borrowers. Unfortunately banks do not find this role as profitable. Let's forget the ideological whining and request that the fed be given the powers to borrow low and distribute to productive sectors. At least then we'd be free from the hostile holds rip of greedy bankers and conniving thieves called politicians on this economy.

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If you can buy a house then you should do so now. It is posblsie that the price can come down more but the interest rates are going up. Start working with a reputable real estate agent /broker to see if buying a house is something you can really do now.

Reski

Bankrate isn't a fantastic soruce, as my rates are always better than what they offer, and rates can change on a whim (we had 4 reprices today w/most of my lenders).Also, the Fed cutting the rate usually forces rates upward, as inflation becomes a concern, and mortgage bonds despise inflation this is not the case this time as there was a global rate cut to stave off inflation.Your best bet is to have a lender/broker you can entrust. One thing about life with a bank is that once you're locked in, you're locked in. With a broker, you can switch lenders if pricing improves. They were right in that rates took a large hit today, but things should settle down and go right back to everywhere they were shortly possibly even lower as the election gets quicker (pun how that works).

Kanokwan

no not really as the rates can be pusbhlied as many times a day as the market dictates. I watch the market for certain trends and I knew we were being paid an increase today around 10:00 a.m. about an hour before they were pusbhlied. I have several that I did not lock as I reckon they will float back down. Also the FED Funds rate does not as some public who reckon they are in the know about have any thing other than residual effects on mortgage rates as it is only a trickle down effect and can take a month for that to take place. Fed Funds is between banks as an over night loan and the rate is 1.5% now. That makes for inflation across the enter. The Market must right.I am a mortgage banker in TN KY as well as a former registered principal in investment banking

Selime

Yes, you're reading my wind farm exlapme right.The godawful mess that is the credit derivatives business is a longer story that begins with the de-industrialisation and financial deregulation policies of Ronnie Raygun and his friends.Low interest rates allowed the latest couple of bubbles to happen, but so did a de-fanged SEC and a Congress that was utterly subservient to Wall Street. In a mess this big, blaming a single cause is almost always misleading.

Davut

Great question, Dana. That loan amnuot is small, and most closing costs are fixed costs, not a percentage of the loan amnuot. So, as a percentage, to get the Par rate, or the lowest going without paying points' to buy the rate down, you would be about 3.5% of the loan amnuot in this case.What I recommend for most, is to bump the rate up by .25% and eliminate the Origination fee, which is the single largest fee in the closing costs.I also like to increase the rate by a bit more for larger loan amnuots, and do a complete Lender Paid Closing Cost Loan , or No Closing Cost loan . However, on a small loan amnuot such as yours it would be too much of an increase in rate to have enough Yield for me to pay all your closing costs. It would not make sense for you.But the second option would, and if I can help, feel free to contact me at the phone number above, or at

Amala

1470Call me confused here. I'd heard that if inertest rates do rise, it will be met with lower house prices. And that it's better to buy a house with a lower price at high inertest rates than a higher priced house at low inertest rates because if rates fall later on you can always refinance.So at the moment inertest rates are falling and home prices, at least in the Seattle area, are pretty flat. I know that they've been going up in some parts of the US, places that were just decimated by price drops in the last few years, much more so than Seattle.I see three ways to stimulate home sales:1. Lower inertest rates.This doesn't seem to be working real well. It just doesn't seem possible that they can get much lower than they are now, but I've been wrong before.2. Lower home prices.In some parts of the United States, monthly mortgage payments on a home are lower or the same as the rent for an identical home. Generally, these are places with a not a whole lot of demand and lots of space/empty houses available. But it used to be that way in Seattle, and I think it was like that until around the mid 90 s.Still seems a bit out of whack in the Seattle area, and either rents will rise to narrow that gap, or home prices will drop .and rents aren't rising. There are still a lot of foreclosures and short sales out there, and there remains shadow inventory , houses that the bank foreclosed on but haven't put on the market. They're holding bank maybe because they don't want to flood the market amd create lower home prices, and they're hoping for higher home prices. But they've got to maintain and pay taxes on these homes. At some point, they won't be able to keep collecting these homes and spending money on them, while getting no income in return.I just can't see Seattle area home prices going up in the near term, and they have the potential to go down a bit.3.Create demand by having more good paying jobs or having a wealthy person's relocation program to the Seattle area..Seems to me that wherever there are a concentration of wealthy folks, it kind of sets the standard on house prices for everyone else, so San Francisco, Seattle, LA, NYC, etc have enough wealthy folks to make houses out of reach for a lot of average Joes.Seattle's already pretty good at that.

Gustave

Yes, you're reading my wind farm exmaple right.The godawful mess that is the credit derivatives business is a longer story that begins with the de-industrialisation and financial deregulation policies of Ronnie Raygun and his friends.Low interest rates allowed the latest couple of bubbles to happen, but so did a de-fanged SEC and a Congress that was utterly subservient to Wall Street. In a mess this big, blaming a single cause is almost always misleading.

Jenny

The overnight inranbetk rate is the rate that banks charge for revolving credit ( overdraft, if you will) to other banks. The risk premium is how likely the bank thinks it is that you will not be paying back the money on schedule. Profits is what is left over once the risk-free interest rate and the risk premium have been subtracted.One of the problems in the present financial crisis is that banks operated with negative real profits because they set the risk premium too low.

Ahmet

1017RE: I'll probably buchter or get some of this wrong but to explain it simply, the theory behind monetary policy is based on the control of the lending rate (interest rates to bank) and/or the supply of money. The primary goal for a central bank (e.g. The Fed) is typically to stabilize the economy. Normally this means raising interest rates during times of expansion to control inflation and decreasing the interest rate during a recession to increase the amount of available money and discourage saving and encourage lending. This is assumed to lead to more spending and capital investments by businesses that will then cause the economy to grow.Contrary to what many people believe the mortgage rate is not directly tied to the Fed Rate, thus why it fluctuates so much. The Fed Rate specifically has to do with the rate the Fed charges banks to borrow money on overnight debt. Mortgage rates are actually based on long term securities like 10 year Treasure Notes and 30 year Treasury bonds. Simply put, treasury securities are about the least risky and most liquid investment that can be made. Therefore in order for a bank to want to lend money the rate on mortgages needs to be more attractive because of the added risks. So mortgage rate = yield on treasury securities + debt and interest rate risk + liquidity risk(whether and how quickly you'll be able to sell)The reason mortgage rates are so low right now is that the markets are bullish about growth and there is a large amount of risk still out there. So people are funneling money into US securities. The demand for US securities causes the yield on them to decrease. The government has also demonstrated that they are willing to bail out and back up Fannie and Freddie removing a lot of liquidity risk.

Melany

dccThat's one of a series of dratamic graphs showing the 30 year impact of government influence on fiscal policy. As the economy naturally slowed with the end of the WW2 rebuilding and Vietnam/Cold War efforts, the government opted to keep things rolling along by continually easing interest rates to drive expansion, not just in home ownership but in the economy at large. When inflation is taken into account the real or effective rates have fallen even faster and are really lower than shown. The problem is that the policies chosen have built a huge distortion into the economy, one expression of which is the now collapsing housing bubble.Given that you can't raise rates without bringing the economy to a standstill, and there isn't much room left to lower them, what can we do to both correct the distortions and keep the economy stable? The answer is we've entered an impossible situation where the closer we get to zero, the fewer options we have. The good news for home buyers is rates will probably not start up for some time- perhaps years. The bad news is any asset purchased will also be declining in value, so even with low rates you will probably be put into a losing position.It's as though we are trying to climb a hill in an old truck. The gas pedal has been getting to closer to the floor for some time, and now it's as far down as it can go. Unfortunately the truck is still slowing down, the top of the hill isn't in sight, and just to keep it interesting the engine is starting to sputter and cough. We need AAA for the economy.

Crixx

ca1RE: You are operating under ienrorcct, idealistic assumptions is why. The government is partially owned by the banks, who are a strong central part of the corporate oligarchy, and therefore they don't want to solve the problem as you see. The problem they are trying to solve is how to keep those banks in power and generating wealth for themselves. The depression is a nice canard, like terrorists taking away your freedoms, therefore we should take away your freedoms to safeguard them for you. The government will, again, not lower deficit spending either. We see the problem as: the government needs to stop spending so many tax dollars down a hole and digging us deeper. The government sees the problem as: lets borrow more so that we can give even more of it to corporations. They are solving that problem and doing quite well at it. Defense spending is a prime example of this, people see the problem as the war in Iraq or Afghanistan or where ever is next and want to stop that problem. The government sees the problem as how can we give more money to defense contractors, who are perhaps the largest part of the corporate oligarchy and perhaps even more powerful than the banks. Once you realize you are looking at the wrong problems you can see why their solutions never work: they are not solving the problem you think they are.

Elham

But my question is, was it the fact that the curerncy was made of gold before that made implementing stricter cash(gold coin) withdrawals such as the so called "gold confiscation" before more dramatic or was it just the act of not being able to supply depositors who demanded cash(gold coin) for their cash derivatives(bank note/certificate) that made it so dramatic? The action of banks today makes me believe it is the latter, that it doesn't matter that the cash is no longer made of gold, that it is just as bad not being able to provide the cash even though it's made of only cotton and linen. If you think about it there is no difference in the money because the fact that the curerncy was made of gold meant nothing. It was illegal to melt the coin for the gold so it wasn't like people cared that the curerncy was made of gold. In some way it might seem worse for the mint to have a shortage of cash today because in the case with gold being used to make the cash back in 1933, it was understandable since gold is a rare commodity but it is probably shameful for the mint to fail to print/mint enough cash to meet demand today since the cash is made of a far more abundant commodity(cotton and linen). Which is probably why there is never any talk about it. Even suggesting it gets you ridiculed. Plus more importantly, you know what the shortage of cash would be admitting, it would be admitting that central banking has failed. At least before they could use the excuse that gold was the problem, that gold was too rare to be used as cash, even though that was not the problem. The problem was that giving the power of creating cash to one central power puts too much burden on that power and causes that power to fail to do the job. They can't use that excuse today because the cash is made of an abundant commodity(cotton and linen) and if there is a shortage of the cash, it will be exposed that the govt. failed to provide enough cash for the system. That would be the death of central banking. Legal Tender laws would have to be repealed as the legal tender laws will have failed the nation. The central bank will loose seigniorage as it will have to compete with other private mints for the minting of the cash. I don't know, we'll see what happens if/when the effects of the shortage of cash show up this year.

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b25By :Maybe a new paradigm intaesd of Buy now or be priced out forever we should say Sell now or be stuck forever . I think it is kind of catchy.Bull markets and bear markets are mirror images of each other. Sell now or be stuck forever is the mirror image of Buy now or be priced out forever . Nice quote indeed.In bull markets you climb a wall of worry whereas in a bear market you slide down a slope of hope . Sellers are hanging on to hope and slowly but surely watching their homes go down in market price.Homeowners in Seattle are so lucky compared to places like Miami where prices are down more than 50% in some areas and these are not tiny hamlets far from the city but neighborhoods that existed for 20+ years in the metro area. A 10% drop eats away about a year's worth of after tax earnings where as a 50% drop practically wipes out retirement savings (assuming the homewowner had some to begin with). Very hard to deal with these kind of drops so it is much better to avoid getting into that situation in the first place.

Clarisa

b9eRE: RE: OK, Kary has mentioned that bunsesis needs credit. Some how we need credit for bunsesis. I understand equipment, it needs to pay for itself as we go along, but credit is the cost of doing bunsesis. Raising the cost of doing bunsesis doesn't necessarily mean that's a bad thing. As some one pointed out it might make people think before making bad decisions.Then Kary brought up that insurance mitigates the risk of doing bunsesis. Hmmm .So if large corporations speculate with credit to expand, then insure against losses, that, to me, is an unfair advantage to bunsesis as a whole. if a large corporate entity wins, they win, if they lose they are insured. Small bunsesis doesn't operate that way.I had heard that it is much easier to have huge corporations create jobs, contribute to health care, pay more FICA, and absorb the costs of expansion. All of that is true, but the system is set up that way.My only question would be if it's possible these incredibly low rates are bad for the economy. Does it give too much power to the whims of large companies?

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