Links and Minifeatures 2008 03 20 Thursday

Fed Cuts Rates by 3/4 Percentage Point

Bankers are absolutely consistent. Live in fear of inflation. Leave money too tight for too long, then panic and over-react when the what you've done becomes undeniable. Then when the problem passes, crank things up too tight again and wait for the cycle to repeat.

Rate sheets today (March 18th) seem consistent with yesterdays, though - very little difference thus far from the sheets with the massive retail cut that came through yesterday afternoon. Ya think maybe the Fed tipped off the banks? Bankers tipping off banks? Nah, couldn't happen (end sarcasm). But they only dropped rates by about 1/4 percent, so we might see a little more in the way of retail rate cuts as the week goes on. Market forces will determine, of course.

Sad News: Arthur C. Clarke has died.

He hadn't written anything I enjoyed for a while, but his earlier career is awe-inspiring. "Reunion" is and remains one of my favorite stories of all time. It's less than two pages, but you'll remember the last sentence. Childhood's End, City and The Stars, and many others. Compared to those, "2001" was enjoyable enough, but limited in imagination.

And Still I Persist has a very cogent explanation of his influence.

Victor Davis Hanson makes quite a cogent point about Gaza and Hamas

Dalai Lama says he's ready to meet Chinese, but is rebuffed

The Dalai Lama said he'd like such a meeting to occur outside China but would travel to Beijing if the outlook seemed positive. "If there are concrete indications, I am ready, I am happy, after this crisis -- in a few weeks, in a few months," he said.

but

Foreign Ministry spokesman Qin Gang said at a news briefing that China hadn't softened its stance on dialogue with the Dalai Lama, and likened the Nobel Peace Prize laureate to a gangland figure.

and

"We must judge the Dalai Lama not merely by his words but also by his actions," Qin said. "As we have repeatedly pointed out, Dalai is a political refugee engaged in activities of splitting China under the camouflage of religion."

Qin said the exiled Tibetan leader was the head of a "Dalai clique" that orchestrated criminal unrest, which began in Lhasa last Friday as Tibetan mobs torched scores of Han Chinese-owned stores, set street bonfires, threw rocks at police and overturned vehicles. Since then, ethnic unrest has spilled outside Tibet to three neighboring provinces.

Actually, he threatened to resign as head of Tibet's government-in-exile if the rioters didn't stop the violence.

If the Dalai Lama wanted, he could trivially have made Tibet into another Kashmir or Chechen war. The mountains of Tibet are more forbidding than Afghanistan, where the Soviet empire met its end. But he has chosen a Gandhi-like path of peaceful resistance. Unfortunately, the Chinese government is not the British, and so instead of independence (or autonomy, which seems to be what he's really after) after considerably less than 49 years which Gandhi achieved because the British behaved decently, we have the least publicized genocide in the world still ongoing because the Chinese government will not.

Fannie and Freddie Set Free

Another stone fell into place in the federal government's plan to build a path to credit market recovery. On Mar. 19, the Office of Federal Housing Enterprise Oversight, or OFHEO, said it was reducing the amount of capital it requires Fannie Mae (FNM) and Freddie Mac (FRE) to maintain on their balance sheets above statutory requirements. By reducing the capital surplus level from 30% to 20%, the regulator will provide up to $200 billion in immediate liquidity to the distressed mortgage-backed securities market.

Stuff like this does more than anything else to restore liquidity. However, I'm going to be the first to say that I don't currently understand why the requirement was in effect, so I'm not certain loosening it is a good idea.

But while the extra capital will set the jumbo markets moving again, Larkin says he doesn't expect spreads between mortgage rates and 10-year Treasuries to shrink meaningfully until the government says it will guarantee Fannie and Freddie paper. That would trigger a wave of refinancing, he believes: "You'd be creating a floor in housing. You'd be stimulating a whole bunch of new demand."

Well, duh! But I don't think the government is likely to do that, and I'm inclined to believe that it would be a bad idea. I'm sure Merle Hazard will have something to say about it soon.

Q and O on free markets and government subsidies causing disruptions therein.

Video: Gingrich lowers the boom on Obama

Leery lenders demand more from borrowers

ust when consumers and the U.S. economy need banks to lend more freely, the mortgage industry is making it harder to borrow - even for those with good credit.

Man, those crack professional reporters at AP are right on top of the phenomenon - a mere forty days after I covered it all this and more in The Self-Fulfilling Prophecy of Lender Fear

More and more, we're approaching a stage where in order to make sense on many subjects and be in touch with developments, you've got to be a working professional in that field of expertise - not journalism.

Why I love San Diego: It's still winter by the calendar, and today my clients, an inspector and I were out at a property we have in escrow. All of us were in shirtsleeves enjoying the sun. The inspector said he was going to wear shorts for his work tomorrow.