Bernanke and the Fed insist on fighting the market forces, but the market just delivered a swift kick in the Jimmy to Bernank, his cronies, and the American people.  So much for those artificial 4.5% mortgage rates that were supposed to save the housing market.  What’s the next trick of stupidity that Bernanke will pull from his sleeve to combat the market?

From The Wall Street Journal:

Bond markets continued to gyrate Thursday after a sharp run-up in 10-year Treasury yields the day before. The bond market pushed yields of 10-year Treasurys down to 3.674% from 3.70% Wednesday, but they remain well over mid-March’s 2.5% level. Yields on mortgage-backed securities continued to climb, pushing 30-year fixed-rate mortgages to 5.44%, the highest since early February.

The market has spoken, and it has clearly said that it wants higher yields from ALL BONDS.  If the government insists on printing more money and thus increasing the risk of default, then the market demands  a higher yield for loaning out that money.  And those higher yields translate into the mortgage market as much as the treasury market.

Anyone care to guess what will happen when mortgage rates continue rising, and lending standards remain tight?

  • A)  Loosen lending standards and resume making $500,000 no money down, negative amortization, option arm loans to McDonald’s Fry cook’s everywhere.
  • B)  Watch as bankers everywhere resume their bailout begging when the value of their mortgage backed holdings continue to dwindle, as home prices accelerate their downward spiral – especially on the coasts and big cities.
  • C) Social unrest in the U.S. as more and more home “owners” are thrown into the street.
  • D) Social unrest in the U.S. as more and more responsible renters get stuck with the bill for their irresponsible neighbors mortgage bills.

Stay tuned…