Be-Be-Be-Benny and the Fed


This morning, Ben Bernanke testified before the House Budget Committee.  You can read his entire testimony here.   During the question and answer session that followed afterwards, there were a few comments that I found interesting:

"Subprime done properly is a positive thing".  I agree completely with Ben Bernanke here.  He gave stats that there are approximately 5 million mortgages classisfied as subprime ARMs with a total principal value of about 1 trillion dollars.   He estimates that currently 20% of the subprime ARMs are delinquent and that not all of the delinquent borrowers will go into foreclosure.   80% of subprime ARMS (the most troublesome sector in the mortgage industry) are performing.

One member of the House, Representative Marcy Kaptur from Ohio-D, didn’t even know who she was addressing!  In an akward moment, she had confused Bernanke with Paulson implying Bernanke was once the CEO of Goldman Sachs and that he may somehow have responsibility with the mortgage meltdown.   From the Baltimore Sun:

"No, no, no, you’re confusing me with the Treasury Secretary, said a smiling Bernanke."

"No, I got the wrong firm?"

Someone whispered to her the Treasury Secretary’s name Henry Paulson which she then uttered.

Then she said "Where were you, sir?"

"I was the CEO of the Princeton economic department," Bernanke said, referring to Princeton University where as economics chair he got to manage other professors and graduate students, not investment bankers and financial traders.

That got a huge laugh in the hearing room, proving yet again it pays for a central banker to have a sense of humor when he has to deal with Congress.

"Sorry, I got you confused with the other one. I’m sorry. Well, I’m glad you clarified that for the record."

Ben’s views on the economy facing slower growth combined with a dismal Philedelphia Fed Manufacturing Index helped to send the Dow tumbling 307 points to a 10 month low.   Mortgage interest rates are currently staying low during this turbulent market.   A rule of thumb to follow is the worse the stock market does, the better rates do as investors are pulling their money from stocks and investing them into bonds.   

All eyes and ears will be on the Fed waiting to see how much they move rates on their meeting on January 30, 2008…or if they take action sooner.   Remember, when the Fed lowers rates, this typically has a reverse action on long term mortgage rates (they go up).   Don’t wait for the Fed meeting to lock in your interest rate.

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