How the U.S. Federal Reserve Lost Control of Mortgage Rates by Brian S. Icenhower

Despite the United States Federal Reserve Board's diligent attempts to stimulate the economy throughout the year of 2008 by repeatedly reducing the Federal Funds rate, the typically correlating thirty-year average mortgage rate stubbornly remained unchanged through the first quarter of 2009 as if mortgage rates had intentionally ignored Board Chairman Ben Bernanke's seemingly regular rate cut announcements. The unanticipated loss of the Federal Reserve Board's control over mortgage rates hampered its ability to stimulate home sales and stabilize declining housing values that became the impetus of the nation's troubled economic condition. To fully comprehend how mortgage rates managed to slip out of Mr. Bernanke's leash, it is necessary to first grasp the characteristics and interrelationships of the rates and securities vehicles involved.

The overnight lending rate that the Federal Treasury charges banks for funds is the interest rate that the Federal Reserve Board continuously lowered until it ultimately rested at a rate of .25% by the first quarter of the year 2009. Once upon a time when this rate was lowered one could reliably wager that the thirty-year average mortgage rate would follow suit. It was logical that if a bank borrowed from the government at a lower rate, it could provide mortgage financing to borrowers at discounted rates. However, the mortgage rate is not quite so directly manipulated by the puppet strings of the Federal Reserve Board. Instead, the thirty-year mortgage rate is predominantly influenced by fluctuations in the ten-year Treasury bond rate. Because most thirty-year mortgages are paid off by borrowers during the first ten years of their loans, conservative securities investors choose between purchasing the relatively safe ten-year Treasury bond and the once slightly more risky mortgage-backed securities that consist of many thirty-year mortgages pooled together. It is this very competition between the price of Treasury bonds and mortgages on the securities markets that most impacts the thirty-year mortgage rate.

Although Treasury bonds typically provide a relatively low rate of return, they represent a very low-risk investment because they are backed by the United States Treasury. Mortgage-backed securities have generally produced a somewhat higher yield than treasury bonds, yet were considered to be narrowly riskier investments since they are secured by real estate. Consequently, the "spread" between Treasury bond and mortgage-backed security yields has historically been around .75%, with mortgage-backed securities representing the higher end of the spread due to the additional risk attributed to them.

When real estate values significantly declined from 2006 to 2008, the risk associated with purchasing and holding mortgage-backed securities became significantly enhanced. To counter this perception of increased risk, sellers of mortgage-backed securities were forced to offer mortgage-backed securities at higher yields so that they would continue to be attractive to investors. By the first quarter of 2009, the spread between Treasury bonds and thirty-year mortgages reached an unprecedented 3.00%. As a result, banks were forced to offer mortgages to borrowers at higher rates to compensate for the higher yields they had to provide to investors on the secondary loan and securities markets.

So despite all of the Federal Reserve Board's efforts in reducing overnight lending rates to banks in 2008, thirty-year mortgage rates remained relatively unchanged by early 2009. The Federal Reserve had lost all ability to influence mortgage rates. In turn, this forced the federal government's hand to look to other means of simulating the housing and financial industries, such as purchasing hundreds of billions of dollars worth of mortgage-backed securities from financial institutions itself. This extreme government action has often been labeled a "bank bailout" since the government reluctantly purchased "toxic assets" that investors were otherwise unwilling to purchase on the open securities market.

Whether the government's investment in these securities amounts to a success or a failure still remains to be seen. If housing values once again appreciate before too many more borrowers default on their mortgages, the government may be able to sell these mortgage-backed securities for handsome returns to investors in the future. However, if increased foreclosures continue to flood the housing market with excessive supply, the federal government may eventually learn how great a price it actually paid for its investment. If these potential securities losses, coupled with further anticipated economic stimulus spending, ever amounted to an inability or unwillingness on the part of the federal government to meet its obligations, even Treasury bonds might begin to look like a risky proposition.

About the Author

Brian S. Icenhower, Esq., BS, JD, CRB, CRS, ABR, a California Association of Realtors Director, practicing real estate attorney, a real estate expert witness and litigation consultant, a prosecution consultant of Tulare County District Attorney Real Estate Fraud. He may be contacted at bicenhower@icenhowerrealestate.com, or http://www.icenhowerrealestate.com/

How Much Power Does The President Have Anyway?

I have been thinking about the past presidential election now that it's a done deal and came away with these thoughts.
During the campaign, all the headlines either for or against the current president read like he had total control once he got into office. We saw he is a terrorist, socialist, not enough experience, untrustworthy, radical associations etc who was going to ruin the country. For those for him it was basically we need change. It's a shame I can't think of any other pro Obama arguments. For them, he was going to change the country. For someone with no knowledge of the American political system, watching the campaign trail would lead one to believe that this person had free reign once in office.
Now that he is in office what change can he bring all by himself without other political figures. Well I can only think of veto power. So how much power does a president really have, in my opinion not much. He really is just the current logo for the United States. This president actually has a logo. As I watch and read the news about the stimulus package that is trying to rescue the state of the economy, the only thing I can think of is that only 4 republicans voted for it. If there were not enough democrats to vote on it, it would not have passed. There would have been nothing the president could do but go back to the proverbial drawing board. The president is like the idea guy. He looks at what is ailing the country and comes up with ides to fix it. But when no one likes his ideas they don't get put into action. So again how much power does the president really have?
I think when it time to vote for a president listening to his policy is good but it really doesn't matter since he can't implement it anyway. It can be use to get an understanding of the type of person he or she is. I think more important that policy we should concentrate on character, are they honest. Self-explanatory. How they have run their own life. Have they over come any adversity? Did they have to work for everything they got or was it handed to them because of their family or associations? Are they a leader? Can they get people to work together that probably wouldn't? Those traits are more important than individual policy ideas. The problem with Bush was not his policy in my opinion; it was that he was divisive and not very convincing with his ideas.
I guess if you leave office and your considered a president that got things done, either you were a good persuader or a congressional yes man. Think of who was considered a great president and they will fall into one of these categories.
In four more years we the people of the Electoral College will decide if we need to change the logo.
Find more useful information @ http://www.mylifesuks.com/

About the Author
Just writing about the things that matter to me and hopfully to you

Explanations And Survival Of The Coming Collapse Of The U.S.

I understand it's very hard to imagine a scenario like that, but the facts are very clear... it's happened to other countries in the past (including the United States, back in the 1930's) and it's going to happen again. All the signs of imminent collapse are here, but the media never tells the whole story. Right now, the unemployment rate being told to us on the news is around 7%, but the fact is that there is no way to accurately judge how many people in the United States have lost their jobs. How do you think they calculate unemployment percentages? By the number of people who draw unemployment benefits that they have paid in. How many people do you think are unemployed that aren't drawing unemployment benefits? What about the people who don't qualify for unemployment because they had to quit their job due to finances or family problems? My friend Robin quit her job because she has a 4 year old and a 3 year old that had to be taken to a babysitter everyday (both at $10 each per day) so she could go to a job that's an hour and a half away and only pays her $10 an hour. The reason she quit was that her kids were sick and needed to be taken to the doctor too much and basically, to punish her, they took her off the part that she made $10/hr on and put her on something she could only make $6/hr on. It came down to a choice between driving an hour and a half to a $6-$7/hr job and neglecting her kids health care... or quitting her job and not qualifying for unemployment benefits.

So, the unemployment rate is not as clear, cut, and dry as the media makes it out to be. It's very, very easy to fall through the cracks and not be able to qualify for unemployment while at the same time doing what's best for your and your family's welfare. Not only that, but a person who loses a full-time job and finds a part time job making significantly less isn't listed as "unemployed", obviously. Take a person making $3,000 a month at a full time job... if/when they lose that job for some reason and find part-time employment making only $1,200 a month (not enough to pay their bills), and consider that impact on the economy. Many, many people are underemployed, meaning they don't make enough money to pay all of their bills every month.

Wal-Mart is a prime example of an underemployment offender. Wal-Mart considers a "full-time" employee to work only 34 hours a week. You and I both know that the industry standard for "full-time" is 40 hours a week. Most people working at Wal-Mart have wages that are below poverty level.

"As states across the country struggle to balance budgets and keep their Medicaid programs in check, data from Florida and 12 other states show Wal-Mart to be a top corporate beneficiary of state-run, taxpayer-funded programs like Medicaid. That is, the retail behemoth deliberately cuts corners on employee health care, forcing a disproportionate number of its employees into state programs in order to receive health care for themselves and their families." -- The Tallahassee Democrat, April 19, 2005


You know the housing market has been in shambles for years now. The next thing that's going to crumble is the commercial real estate market, simply because the more people that lose their jobs, the more people stay home and purchase less luxury items. Luxury items being anything not necessary for survival, meaning food, rent, car payment, car insurance payment (which you have to pay by law in most states), and if applicable, health insurance payments... until they have to make a decision between groceries and health insurance.

You may not know this, but Iceland's government collapsed due to financial crisis within the past few months. Latvia's government collapsed today for the same reason.

Tell me if this sounds familiar:

"Iceland has been mired in crisis since the collapse of the country's banks under the weight of debts amassed during years of rapid expansion. Inflation and unemployment have soared, and the krona currency has plummeted.

Haarde's government has nationalized banks and negotiated about $10 billion in loans from the IMF and individual countries. In addition, Iceland faces a bill likely to run to billions of dollars to repay thousands of Europeans who held accounts with subsidiaries of collapsed Icelandic banks."

Do you know what was in the bailout bill last October? Three key points:

• The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time.

• Financial institutions are "designated as financial agents of the Government." (See Iceland.)

• "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to NO ONE in the process. Congress can't challenge it, the President can't challenge it, no one has the authority to tell the Secretary "no, we can't afford that".

Consider the fact that the Soviet Union was at one time a first world nation years ago, but it went through a complete financial collapse, during which there were riots, breadlines, massive unemployment, starvation, and etcetera.

As far as the restaurants, they're going to go down because no one is going to be able to afford to go to them anymore. People will be eating in their homes more and more as things get worse, because that $4 cup of coffee at Starbucks is no longer going to be sustainable. As unemployment skyrockets, the big rig trucks that keep America going are going to stop rolling because there will be no one to buy what the trucks are hauling, be it toys, consumer electronics, etc.

Have you ever seen people prepare for a hurricane, how they go to stores and buy up batteries, bottles of water, flashlight, blankets, etc? When people finally figure out that there's going to be a food shortage, grocery stores are going to be madhouses because there isn't going to be enough to go around. When people figure out there isn't enough food to go around, there are going to be riots. Why isn't there going to be enough to go around? It will be because of inflation. The loaf of bread that used to cost the grocery store $0.50 or $1.50 to purchase (they sell it to us for $2, which leaves $1 or more, but not even all of that is profit when you count store overhead and employees) is going to start costing $2, $3, $5, $10 for them to purchase. Then, to attempt to stay in business, they're going to attempt to sell it to us for $12, $15+. Prices are starting to go up already, but nowhere near the rate that they're going to go up. Less than a year ago, a box of macaroni & cheese at Wal-Mart cost 50 cents, now it costs closer to 70. The price of milk continues to go up, not because the milk is any different than it was 10 years ago, but because of inflation. It took 3 days for grocery store shelves to be empty during Katrina in the area around New Orleans. People don't realize how quickly something they're so used to having can simply disappear.

Surging Costs Of Groceries Hit Home

During the Great Depression, people needed wheelbarrows full of money to buy a loaf of bread. The last two paragraphs of this news article (February 6, 2009) are interesting:

"Marla: Did people really need wheelbarrows full of money to buy bread?

Greg: Yes, the great stories are, though, the women would bing their wheelbarrows, park them outside, buy the bread, come back outside and find the wheelbarrow had turned over, the money was still on the street and the wheelbarrow had been taken. Let's hope it doesn't come to that."

Another reason grocery stores are going to drop like flies is the fact that people are going to figure out that it's cheaper to grow a garden in the backyard than it is to go to a store and purchase produce. It'll take a while for people to learn how to do that again (the internet will probably be a good source of information during this time... I'll explain why below), but they're going to have to learn if they're going to survive.

Putting away 2 to 3 months worth of food will help you survive the 2 to 3 months that are going to be chaotic. It'll help you survive the riots (people will be rioting for good reasons, but stay HOME... don't join in the "festivities") and the food shortages. A grocery store in my hometown went out of business within the past year because they simply couldn't compete with Wal-Mart's supercenter. As more and more people flock to stores like Wal-Mart for everything they need, the more people it's going to put out of work. It's almost like voluntary communism. People choose to go shop at the store with the cheapest goods (often huge department stores will put up a new store in an area and operate at a loss to drive other businesses around them out of business) and it puts surrounding stores out... when this happens, people have no choice but to shop at the store like Wal-Mart. My hometown probably has about 8,000 people in it, but there is only one other small store in town to purchase clothing at other than Wal-Mart. If you want to buy clothes, it's go to Wal-Mart or go 35 to 40 miles away. My family's movie rental store went out of business in 2005 because we couldn't compete with stores like Wal-Mart, Blockbuster, etc. (who get discounts for buying titles in bulk).

Riots will be for a number of reasons. Food shortages will be one reason. As more and more people lose their homes, you'll see tent cities popping up all over the country. Tent cities are already in existence in many places in the US, but you won't see it on your prime time news stations, only online:

Tent City Highlights US Home Crisis

Tent Cities Spread in US As Economy Sags

When the police start destroying people's homes (tents) due to building codes and "sanitation issues", there are going to be riots and police are going to start getting attacked.

Another reason for riots is the want for real change in government. When Obama doesn't deliver the "change" that he promised (and he won't), the people are going to figure out that they've been had. When states start raising taxes on people who are already hurting because the states can't afford to provide the services they could provide before (social services, police, firefighters, sanitation, etc.), people are going to be extremely upset. The term "civil unrest" isn't going to be able to describe it. They're already preparing for "civil unrest":

Army Brigade Homeland Tours Start Oct. 3 -- September 2008

Unrest Caused By Bad Economy May Require Military Action -- December 29, 2008, The El Paso Times

The Obama administration and Obama himself have admitted, "it's going to get worse before it gets better" and they're preparing for it to. When it gets to the point of riots, they're going to start confiscating weapons like they did during Katrina in New Orleans. Confiscating the weapons in New Orleans set the precedent for them to be able to do it legally, since nothing was ever done about it then. No one was punished for violating the 2nd Amendment. Some people think that the 2nd Amendment means that only the national guard is allowed to have guns, but that isn't possible because the National Guard wasn't brought into existence until the 1900's. As you know, plenty of people in the US had weapons from 1800 to 1900.

Now, what people are going to hold onto until the last minute is technology. Their internet connections, their cable TV, their cell phones; the reason for this is the fact that so many people have learned the behavior that "I can't live without it", especially people our age. Think of how many people grew up with television in their homes; they don't know what it's like to go without one. Since the 1990's, how many people have learned that they "can't live without" a cell phone? More and more people have cell phones instead of actual land line phones (which actually cause political and opinion polls to be skewed, because most polls don't call cell phones because their numbers are unlisted). People are going to stop buying new computers and new vehicles, because it's often cheaper to repair their old one. So, businesses that repair things and sell parts are likely going to prosper during this time. People aren't going to purchase new items unless they're key to survival or more efficient than what they already have.

Most online businesses are going to thrive, because many places offer much better deals than offline stores. Online businesses are also able to operate with less staff and less overhead. As an example, retail stores are required to carry insurance for the consumers that walk into their locations; this doesn't apply to online businesses. A large number of the retail stores (if not most of them) that we know as "name brand" locations aren't going to make it through this.
On the flip side, it's likely that there are going to be supergiant companies that come out on the other side of this. Johnson & Johnson was founded during the great depression in the 1930's and so was Allstate insurance. So, if you can weather the storm in your industry, you may come out with a semi-monopoly on the other side of this mess.

This whole thing is going to cause people to get back to the basics and get back to what's really important in life: God and family. It's going to end up bringing people back to God, because they won't have anyone else to rely on. Government won't have the ability to support them; no welfare, no food stamps, no medicaid. The few soup kitchens and homeless shelters there will be will be run by churches. The vast majority of states are going to show as bankrupt by the end of this year, if not sooner.

As far as gasoline, it's going to stay cheap. It's not that the price of gas is going to be so high no one can afford it... it's going to be that no one has a job to be able to afford it. More and more people are going to be staying home and as they stay home and don't do business with the gas stations, they will end up going out of business. The transportation industry is possibly going to end up being nationalized, just as banks are starting to be nationalized. One of the questions the Obama administration raised was "why don't we have a sophisticated train system in the United States?". Consider which countries have these "train systems"; they've been used as a control mechanism for years, particularly in Nazi Germany. "Your papers, please?"
Do you live in a Constitution-free zone? 2/3 of the entire population of the United States does.

The goal is to install the North American Union, a union between the United States, Canada, and Mexico and replace our US dollar with the Amero dollar.
Lou Dobbs On CNN: North American Union
"North American Union by 2010... implementation is on track..."

Americans will not accept the Amero dollar unless they're forced to; the video makes that clear. But, as the American dollar continues to be devalued and as we go from inflation to hyperinflation, there isn't going to be much of an alternative.

The result? Any American dollars that you have in your possession are going to be worthless. Food and gold will be the new money for a short period of time until the new currency is instituted. But, before that the price of gold is going to skyrocket, because it always does when the dollar weakens. A year and a half ago, I bought a third of an ounce of gold (against the protests of my family, telling me I was buying it when it was high and that I should wait until it drops again)... at that time, gold was $745 an ounce. Today, gold stocks closed at about $1,000. My family doesn't think I'm so stupid now. If you have gold, whether it's rings, necklaces, etc., guard it or, as things get worse, bury it in your backyard at least 4 feet deep. You may think I'm crazy, but gold was confiscated during the great depression via Executive Order 6102 in the 1930's. Jewelry may not be exempt this time around, if they indeed do this again. Keep in mind that it says the restrictions on owning gold weren't repealed until 1974... when it began in the early 1930's.

Just offering some more to think about. Most people aren't able to put all of these things together or recognize the signs because they're too busy living their lives, but if you have the time to pay attention to world events and research, it's easy to piece it all together. I'll end this e-mail with this quote from David Rockefeller as he gave a speech to the Trilateral Commission years ago...:

We are grateful to the Washington Post, the New York Times, Time magazine and other great publications whose directors have attended our meetings and respected the promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years. But, the world is now more sophisticated and prepared to march towards a world-government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the National auto-determination practiced in past centuries.

Consider going and purchasing enough food to get you and your family through the worst part of this, which will be the riots, chaos, etc... but also consider what could happen if you don't do it and you're wrong. It's all about weighing the odds... what are you willing to gamble on? I went and bought 20 pounds of rice today for my parents, because they can't afford to buy it for themselves. I've bought 20 pounds of flour, 20 pounds of sugar, 20 pounds of rice, instant mashed potatoes, a 25 pound bag of salt (to cure meat with... is electricity and refrigeration going to go, too? I don't know, but I'm not willing to risk it), pastas, dry soup mixes, gravy mixes, seasonings, salt, pepper, a dry cured country ham, a slab of dry cured bacon... the list goes on and I'll be stocking myself and people I care about up until I can't anymore.

What will you buy tomorrow to make absolutely sure you can feed yourself, whether this happens a month from now or 2 years from now..?