In Washington, The More Things Change, The More They Stay The Same

by Henry Meier

This morning’s news demonstrates more than ever that Washington has become a real life soap opera with plenty of plot twists but the same old unresolved stories at the end of the week.

First, as expected, the Federal Reserve decided to continue its program of buying $85 billion of Treasury Bonds and Mortgage-Backed Securities every month in order to keep interest rates low.  According to the FED statement, it is prepared to “increase or reduce the pace of its purchases” depending on the outlook for the labor market and inflation.  Translation:  the FED thinks the economy still looks sluggish, but not so sluggish that it’s willing to make further prognostications on its future plans until it gets a clearer picture of what’s going on.  Don’t expect an interest rate hike anytime soon.

Example number two is in President Obama’s nomination of North Carolina Democratic Congressman Mel Watt to head the Federal Housing Finance Agency, which oversees Fannie and Freddie.  He would replace Ed DeMarco, who has held the post for three and one-half years.

First, why should you care?  Because this position is evolving into the single most important position for housing policy in this country.  Even though Fannie and Freddie went bankrupt and into debt to the American taxpayer for approximately $200 billion, the former GSEs have become more, not less, important, to the housing market.  For example, these entities purchase about half the mortgages being financed in the country; and without Fannie and Freddie there would be no secondary market for credit unions, and banks for that matter, to sell their mortgages.

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