Richard Fisher, President and CEO of the Federal Reserve Bank of Dallas, drops the logic for his dissent: “…Texas, like all states, is subject to the same monetary policy as all the rest: We have the same interest rates and access to capital as the residents of any of the other 49 states, for the Federal Reserve conducts monetary policy and regulates financial institutions under its purview for the nation at large. From this, I draw the conclusion that private sector capital and jobs will go to where taxes and spending and regulatory policy are most conducive to growth.”
His speech goes on about how he wants to help the job creators come out of their groundhog burrow, but every time job creators peek out they see the shadow of Obama and the Democrats and run back to hide.
Joking, only a little. But his dissent does reflect a specific argument that access to capital is the same across all states. Is that accurate? Does monetary policy hit every state equally?
The refinancing that could come with these low rates would help consumers rebuild their balance sheets by reducing their monthly payments . It would put more money into the economy. But it’s hard to refinance to take advantages of those rates if you are underwater on your mortgage. This in turn blunts the efficiency of QE and monetary policy. As QE advocate Joe Gagnon pointed out in a Roosevelt Institute presentation:
one of the biggest goals of QEI was to push down the mortgage rate to spark a refinancing boom to encourage households and enable households to reduce their expenditures and repair their balance sheets and be able to spend again. That worked not quite as well as we hoped because the administration’s program for getting underwater borrowers to borrow didn’t work and I think that’s a true disaster that has no excuse. I have nothing but incredible, there’s just, the blame the administration on not doing this is just incredible. This could have been a huge success. We got the lowest 30-year mortgage rates in history and we couldn’t take advantage of them to the extent that we could. We got about a trillion dollars in refinancing when we should have gotten two or three trillion dollars in refinancing.
So places where there is a lot of underwaterness are places that can’t take advantage of the rates that QE brings into existence. I wonder if there’s a correlation between underwaterness and unemployment, or underwaterness and places that most need balance-sheets fixed and a burst of spending and demand? Underwater data from Corelogic, state unemployment from BLS:
Texas is in red, just to keep the miracle in context.
For bonus fun, here it is with the 50 CBSA with the most negative equity versus MSA unemployment (same sources, Corelogic and BLS):
Once again, for fun, Texas is in red. (This graph is marked tentative because I’m not 100% sure on the subtleties of comparing CBSA and MSA that have the same or similar titles and that’s not getting figured out today. Reader help?)
Did you know the Obama administration created a program to deal with this? I had forgotten.
Remember in history class when you had to memorize all those acronyms from the New Deal? Luckily, the Obama administration’s refinancing program HARP (Home Affordable Refinance Program) has the same initials and logic as HAMP (Home Affordable Modification Program), making it easy to for kids in 2050 to memorize. And when you had to memorize a lot of things, did you ever do the game where you created short rhymes with a factoid to help remember them? Kids in 2050 will pull that off as well: “H A blank P / what utter failures they turned out to be!”
In what is becoming a housing economic reporting genre all its own, here’s an excellent big Bloomberg story on HARP from two days ago featured the genre staples: “far short of the administration’s goal….I don’t think by most measures that it’s a success… which services their loan, refused to qualify them…success is vital because it’s one of only a few lifelines for responsible borrowers…” Evidently nudging the servicers isn’t working.
Everyone in that article points out that refinancing mortgages is key to getting cash in the hands of people who most need it. Columbia Business School’s Chris Mayer mentions that if “we’re successful in doing a mass refi, it could reduce payments for 25 million households. It’s like a permanent tax reduction with a minimal impact on the deficit.” I doubt the tax reduction logic, though sound economics, will fly with the Right.
It’s great for the economy and I also think that mass-refinancing is beyond fair – indeed not doing it is unfair. People underwater who can’t refinance are paying for a level of interest expectations that don’t exist, transferring from distressed communities to rentiers and owners of capital. The most desperate parts of our country getting locked out of the capital markets because of the housing market swinging wildly is an injustice that needs to be changed immediately; it’ll also have the added bonus of saving the economy too. Put the GSEs into motion, and let’s do it now.