Pole Dancing

Despite the attempts of the Federal Reserve to drive such borrowing costs lower by purchasing home loans, average mortgage rates have risen from 5.04 per cent on January 13 to 5.51 per cent last Friday.

This from the FT. You know things are bad when the Rethugians are falling over themselves to out demon the Demoncrats. For instance:

The mortgage subsidy plan was a centrepiece of the Republicans’ proposal for an alternative stimulus to the versions pushed by the White House and congressional Democrats. The proposal would in essence cap mortgage rates at 4-4.5 per cent and would, its proponents say, help to stabilise house prices and hence prevent the downward spiral of falling asset values, bankrupt households and troubled lenders.

Sad. And the cracks re starting to show. Colusa County has decided that since State Treasurer Chiang is delaying payments to counties they will equally delay payments to the State. LA County is also considering the same. There was a bomb threat at a mall in Boise. Boise of all places. An thn there's Denniger:

Now let me explain what is almost certain to happen if you are foolish enough to let Taxcheat Timmy pull this garbage.

See, these assets really are trash. Yeah, right now they are kicking off cash flow. For now. But they're impaired and while their coupon will pay for a while they will ultimately default on their face value and recovery is pennies (and in the case of synthetics, zero) when they do.

So what happens here is that you provide 95% non-recourse financing. Sir Hedge Fund buys a buttload of this garbage having only 5-10% of the face at risk, and that's all they need to put up as well, since the government is going to provide the financing - as a "no recourse" loan (presumably very cheaply.) They get a 6-7% coupon which means that in one year they're covered, and in two they're making money like a madman, up 200% or more on their original risk capital.

100% annual returns with government guarantees. What's not to like?