Bill Gross is the Chief Bond Investment Advisor for Pimco Investing. He's recognized as the guru of bond investments on Wall Street. Today Mr. Gross said that the Fed's maintenance of low interest loan rates to banks is actually harming the home loan business.
It seems that ever since the Dodd-Frank law passed in the Democratic controlled congress two years ago banks have been reluctant to lend because of all the restrictions placed on them by Dodd-Frank. While both Bush and Obama had no problem bailing out the big Wall Street banks, no assistance was offered to community banks who had nothing to do with the collapse. However, in doing so, Obama opted to demonize all banks, including the thousands of community banks across the nation, who received no bailouts and were not responsible for those wacky CDO'S that Citi-Bank and other Wall Streeters played with.
However, Dodd-Frank punished all banks equally. Cash reserve restrictions were so onerous under Dodd-Frank that banks have opted to borrow from the fed at zero interest, then turn around and buy 3 percent treasury bonds, thus achieving a modest three percent return with no risk to bank assets.
Mr. Gross says this is killing the housing market as banks see little need to make home loans and be punished for it by Dodd-Frank if any of those home loans prove to be unserviceable.
It is also extremely harmful to those who are getting a quarter point of interest on their savings. Why should the bank pays depositor any interest on their savings when they can get all the money they want from the Federal Reserve Bank at zero percent? When Americans see no gains from their savings deposits they tend to pull back on consumer spending and investing, thus extending the recession.
So, again we have an example of how liberals in government can manage to screw up anything their tentacles touch. Rather than allowing the free market to determine home values, rather than allowing the normal free flow of contract law, banks are pulling in their horns and hibernating. This has resulted in loan money for small business to become extinct. And, for those who weathered this recession, and now prepared to buy a home, too few banks are willing to lend.
Mr. Gross says, until the government gets out of the way, America can expect a continued lag in both home prices and home loans.
Tuesday morning Obama, in an effort to win political favor, announced still another big government program to try to stimulate the housing market. He's pledged another $37 billion of taxpayer dollars in an effort to skirt contract law and bailout folks who made bad investment decisions. Like the three other multi-billion dollar programs this one too is bound to fail. When 30 million Americans are unemployed or underemployed, when the government continues to prevent home prices to find free market values, and when Dodd-Frank punishes banks for extending home loans those same banks are going to sit back and funnel those zero interest Fed loans into 3% treasuries and wait until Obama finally learns of the ultimate power of the free markets.
Sad, Damned Sad. How many days till the election?
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