The FOMC stuck to its target range for the federal funds rate at 0% to 0.25%, and signaled that rates are likely to remain at exceptionally low levels “for an extended period.” This reference stopped short of giving a timeline of 18 to 24 months for the current policy, as anticipated by some market participants.

So, money will remain cheap for the immediate term. This doesn’t necessarily affect mortgage rates but the heavy government involvement in the mortgage market ensures that mortgage rates will continue to remain low as well.

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Hitched to the economy
Divorce rates drop as couples realize it’s cheaper to stay together
By Marty Orgel

SAN FRANCISCO (MarketWatch) — The recession and economic turmoil is creating a new class of casualties: Married couples who can’t afford to get divorced. In these tough times many people are finding it’s cheaper to stay together, even when they can’t stand each other.

“The reason that the economy has such an enormous impact on divorce is that most people in the middle-income brackets are getting by on whatever income they have. They’re just getting by,” said Bonnie Booden, a family law and divorce attorney in Phoenix.

A major factor in the divorce downturn, Booden said, is divorced couples have to establish two separate households with current funds — a prohibitive factor when you’re looking at divorce in tough economic times.

Booden said one out of every two clients is seeking consultations because they can’t afford to get divorced. They want to know what other options they might have.

“I tell them about the process, about the cost, and what a reasonable outcome might be. And once they hear the cost, and especially how you have to duplicate two households on the same money that currently funds one household, they try to think about some other options,” she said.

Who knows maybe something good will come out, as couples stick “around” and weather the storm together.

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Amazing. The Fed cut the target federal funds rate to between 0% and 0.25%. This is a significant event in many ways. Rates can not go further down. Which means the only leverage left for the Feds to influence US Monetary Policy will be through their balance sheets (buying/selling assets etc.).

Below is a snapshot of the Fed announcement. The complete statement from the Federal Open Markets Committee is available on Bloomberg.

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.

Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.

Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

Read full statement.

Remember though that the federal funds rate is not the same as your home mortage interest rate. In fact at times they can go in opposite directions.

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More than one-quarter (27%) of American homeowners say that the current economic environment is causing them to put their plans to buy a new or existing home on hold, according to (pdf) a new Ipsos Public Affairs poll conducted on behalf of Realogy.

Among those who are most likely to say they are putting off a home purchse because of the financial crisis:

• Non-white homeowners (46%)
• Homeowners under age 35 (38%)
• Parents with children under 18 (33%)
• Those with a household income of less than $50,000 (33%)

Are you one of these folks? Just curious.

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Eighteen months ago, U.S. Treasury Secretary Henry Paulson told an audience at the Shanghai Futures Exchange that China risked trillions of dollars in lost economic potential unless it freed up its capital markets.

“An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention,” Paulson said.

Promise to the American people:

“We do not support government bailouts of private institutions. Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself,” – Republican Party Platform, 2008.

Today’s Reality:

Ad on New York Times, paid for by Bill Perkins

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Don’t use Fed as a ‘magical piggy bank’

He’s referring to the recent Federal spending splurge, bailouts, tax payer refunds, the housing bill… the list goes on. That giant sucking sound Ross Perot used to talk about is actually a giant crane sound lifting dollar bills off the money printing machine.

So, I looked for a suitable picture to represent the magical piggy bank – what would it look like? How fast does it spit out $100 bills I wonder. Do you have to press a button or is it running non stop? I wonder if there is a warranty on the motors. At the rate they’re spending money, you’d think you’d have to change the oil fast and what if they miss what happens. So… anyways, I wasn’t able to find a lot of pictures of piggy banks but here are some pictures of pigs I found. Suits the whole premise if you ask me.

This one can deliver cash to any government agency needing a quick ten billion:

photo credit: zappowbang

This one is a bit slow. However it can deliver up to $400 billion to the Presidents desk at a moments notice:

photo credit: zappowbang

This one is the stealth fighter version. It travels to the problem and regardless of the optimal solution spits out dollar bills (in $500 billion increments) until the problem is completely buried in cash. Then moves on to the next one. It also has the ability to come back to the original problem should it resurface. It then throws more money at it and re-buries it. The Chinese love this one – it keeps their reserves high.

photo credit: zappowbang

What’s this doing here? This is my piggy bank after paying taxes:

photo credit: ken +

Finally, this is the magical piggy bank Greenspan is talking about. It doesn’t listen to any taxpayer, only responds to signals by the President or Congress – both need not be present. It does special missions like bailing out companies, keeping social security solvent and stands ready to spill its guts out if Fannie and Freddie need cash.

photo credit: zappowbang

If you see any other suitable pictures of the magical piggy bank – do send them my way. I’d be curious to see what it looks like.

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Movie site: IOUSA

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“This is a systemic financial crisis, there is no end to it,” Nouriel Roubini, professor of economics and international business at New York University, told Bloomberg Television. “It’s a vicious circle between a contracting economy and greater credit and financial losses feeding on the economy.”

President Bush reminds us that the system is “basically sound”:

WASHINGTON (AP) – President Bush urged lawmakers on Tuesday to move quickly in putting into force legislation designed to help prop up mortgage giants Fannie Mae and Freddie Mac while declaring the nation’s financial system to be “basically sound.”

My thoughts?

Well – I don’t think the government should move too quickly on the Fannie and Freddie bailouts. I don’t trust them to get it right this quickly. Too many variables, too many unknowns. Take a deep breath, try to really understand what the best solution is to this problem. The last thing you want to do is panic. At the end of the day it’s investors who are losing money right now – and that’s the game they play, and the government can come in at anytime in the future with a more sensible plan and rescue the market. I just want to caution against hastily put together plans.

Late afternoon update (4:12PM):

Fed Chairman testifies on the Hill (Marketwatch):

Fed uneasy about inflation, growth, Bernanke says

But he also spoke candidly about the weak economy and fragile financial markets. “The possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth,” Bernanke said.

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Take a look at this chart:

This is not what I would have expected. Democrats lowering the budget deficits and Republicans increasing it for the most part? Are we being misled here then? Do the parties have a branding issue? This is how the authors explain it:

Though the picture so far is of the Republicans as the party of austerity and the Democrats as the party of stimulus, there’s a surprise when it comes to changes in the federal deficit: Republicans are more liberal with the red ink than Dems. On average, a Republican in the White House has meant a shift of –1.9% of GDP in the government’s budget balance (i.e., towards smaller surpluses or bigger deficits), while a Dem has meant a 1.5% improvement in the budget position (or 1.8%, if you start in 1949, thereby omitting the huge World War II deficit). And in this case, the average is a faithful representation of the distribution, with only one Democrat in the minus column and only one Republican in the plus.

Some of this reflects different tax policies, with Reagan and Bush 43 cutting, and Clinton raising income taxes. But it also reflects the partisan difference in GDP growth.

Read the whole thing. Certainly makes you think, doesn’t it?

Hat tip: The Big Picture

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IndyMac, the second-biggest independent U.S. mortgage lender last year behind Countrywide Financial Corp., has lost almost $900 million in the nine months ended in March amid tumbling home prices. The company is focusing on mortgages that can be sold to government-sponsored enterprises like Fannie Mae and Freddie Mac.

If you are in the market for a home mortgage and were working with a mortgage broker, call your broker to ask if the loan was to be placed with IndyMac. You’ll need a new lender!

In other bleak news, it was disclosed today that Fannie and Freddie may be required to raise as much as $85 billion in additional capital. To be fair it’s due to new accounting rules, but still the markets were in turmoil.

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