But the size of the problem is more than Uncle Ben can handle with his little rate cuts. Recently, however, he has embarked on a new tactic: covering up fires as they pop up with a blanket of cash. I guess the idea here is that as long as none of these fires are allowed to flare out of control, it's okay if they just smolder under a burning blanket.
But the only problem with this tactic is that he can't do it alone. Already he's used up close to have of his assets and we're only one quarter of the year through. At some point in the future, he will run out of options and he'll have to ask the government to step in and help. If he hasn't done so already.
Taxpayers Will Pay
What this means to you and I, are inevitable tax increases to cover this bailout. According to Bloomberg, these "actions mean the Fed, and consequently U.S. taxpayers, are assuming additional credit risks." Risks that a large percentage of us had no clue we were going to be forced to participate in. All we ever do is work hard to hold onto our jobs, pay our bills and taxes. Somehow, something seems inherently unfair about all of this mess.
I sometimes have a horrible sense of dread when I see what the Fed has been doing. To think that they would provide financing to a non member bank. A bank that does not have to report any of its mysterious and exotic securities to any regulator. And yet they are being treated just like the commercial banks who have to report any aspect of their operation to regulators. Somewhere, somehow, something is threatening Uncle Ben with something more frightening than we are all being led to believe.
Cheaper Dead Presidents
Before the Fed had started on its rate cut limbo dance, the dollar was experiencing strong competition from the EURO. It did not need any help from the Fed to increase its burden. Now, with this seizure in the credit markets and the Fed's attempts to lubricate it back into motion, the dollar is losing its battle not just against the EURO, but against many other currencies as well.
So Where Are We Now?
Lets take a gander at what all that limbo dancing has done so far. Ten year treasury rates have shrunk and yet mortgage loan rates haven't followed suit. Huh? Isn't this what is supposed to happen? Isn't this the reason why he's been lowering the limbo stick lower and lower. Aren't the bankers supposed to follow suit? What's going on here? The rates that I'm talking about are the ones that they tell us are pushing homeowners out of their homes. These are the consumer rates. Credit Card rates and mortgage rates.
Consumer Rates Have Risen!
As a matter of fact, they have actually risen. Freddie Mac's national survey shows that the average 30-year fixed rate mortgage has risen about two-thirds of a percent over the past seven weeks. Since last September, when Uncle Ben started his limbo dance, they have remained nearly unchanged.
Mortgage Backed Securities Interest Risen
Despite the Fed funds rate cut from 5.25% to 2.25% in the last six months, the interest rate spreads on mortgage-backed securities have also risen. This obviously isn't what the Fed was expecting to happen. It was supposed to help rescue the financial sector. Someone is playing some kind of game and they have the rules covered and locked away.
Two Million ARMs and Dangerous
If the rates that matter aren't being affected by these maneuvers, how are the remaining adjustable rate mortgage loans supposed to be defused? There are about 2 million of them still on the books and they still have yet to reset. I can imagine these poor souls seeing Uncle Ben trying to help them but before those little droplets of financial water ever reach their parched lips, the sun baked landscape of the financial sector soaks them up in a flash.
A Possible Way Out
If the Fed can somehow ease the system out of it's epileptic seizure long enough so that it can get regain its senses, then maybe commercial bankers and credit card companies will begin to lower the rates that seem to be the root cause of all this mess.
Miguel Peralta is a freelance writer intensely interested in credit cards and their proper use. Sometimes so much so that he and his better half get into some serious debates over his views. He has many more insightful articles that you might enjoy reading at http://CreditRepair.TopReviewsList.com
Article Source: http://EzineArticles.com/?expert=Miguel_Peralta
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