THE GOVERNMENT SHUTDOWN & THE FINANCIAL MARKETS RICK TOBIN
A few years ago, the U.S. government had to bail out both Fannie Mae and Freddie Mac after they were on
the verge of financial collapse too. What many people do not know is that one of the primary reasons why
Fannie and Freddie almost collapsed is that they held highly leveraged derivatives investments in their
portfolios, which were imploding due to their incorrect financial bets. I still do not understand why Fannie and
Freddie were allowed to invest in risky derivatives back then.
The recent government shutdown led to a short term problem with FHA, VA, and USDA processing all of their
paperwork, since their affiliate government agencies were unable to provide lenders or brokers with the
updated financial information necessary to fund the loans. As a result, many home sales or refinance
transactions were delayed due to this reduced access to government data. Once again, we need more nongovernmental money back in the mortgage markets so that we are not so heavily dependent upon the
government for mortgage loans.
Do we inflate or deflate our way out of this financial mess?
My perspective and belief is that we will continue onward with our “Quantitative Easing” (QE) strategies in
that the Federal Reserve
creates more money “out of
thin air” in order to keep
acquiring
like
financial
stocks,
mortgages.
assets
bonds,
The
and
primary
reason why the Dow Jones
continues to hover near or
above
15,000
in
recent
times, as opposed to closer
to 6,500 back in March
2009, is related to the Fed’s
QE policies, which include
purchasing U.S. stocks on a
large scale.
In recent times, the Fed was purchasing about $85 billion per month in bonds and mortgages. Don’t be
surprised if the “QE Infinity” dollar amounts increase on a monthly basis, in order to allegedly boost financial
prices and values. If the QE policies continue at the same pace or even at a more rapid pace, then mortgage
rates may remain near historical lows which will be continued good news for real estate investors.