AP Photo / J. Scott Applewhite
The Federal Reserve Building in Washington, DC.
The economist Peter Morici, who has been extremely critical of the Obama adminstration's economic policies of late, has taken a look at the housing crisis and doesn't see much hope. He does see one way out, however. But it's an exceptionally unlikely way out:
Currently, the rate on five-year adjustable rate mortgages is about 3.2 percent. If the Fed could get the investors who buy Fannie and Freddie bonds to accept interest rates of minus 3 percent, then young folks could be offered mortgages with appropriately negative interest rates. To accomplish that feat, the Fed would have to buy all those bonds itself-that's right the Fed would finance all federally guaranteed mortgages and write off 3 percent a year. I can just hear Ron Paul now.
Morici makes this argument in the context of discussing why it makes little sense for young people to buy houses right now (unfortunately, I can't link to his piece, as it isn't on his website yet). He refers to Ron Paul, a Texas congressman and noted libertarian, because Paul is no fan of the Fed.