Sixteen Tons, and What Do You Get

Now I'm no economist, and just to prove the point I want to talk about the housing market. As you know, the Federal Reserve Bank lowered both the federal funds rate and the discount rate by 1/2 a percentage point today (that would be 50 basis points for all of you economic obscurists out there), and Wall Street went bonkers. All the major indexes were up well over 2%, and people were dancing and cheering like it was 2003. I'll admit I have a dollar or two invested myself and was feeling pretty good as well.

But what I don't get, and by the way the reason I'll never be an economist, is why this is such good news for the economy - particularly for the housing market. Yeah I understand about lower mortgage rates (which I was always told were more closely tied to Treasury rates than the fed funds rate), and I understand that lower interest rates makes it easier to borrow and buy those big ticket items, but so what?

Let's face it, the reason we got into that subprime mess to begin with was that people couldn't afford these houses they were buying, even way back in the days when the fed funds rate was down around 1%. So what's so different this time around? The growing disparity between rich and poor is still with us, and even most economists concede that for the past decade or so real wages have actually been in decline. CEO pay is up - way up, but the average worker has been losing ground and real estate prices have been going straight up.

So it seems to me that unless you're one of those people shopping for a summer estate on Martha's Vineyard, it's still the lenders job to find a way to get the average buyer into a home he or she can't afford. That means looser standards, creative lending, and yes, lower interest rates. However, lowering rates while simultaneously tightening standards just looks like a wash to me.

But then I'm no economist.

Anyways, Countrywide announced today that they were getting out of the subprime business, while the interest rate cut sent the financial and housing stocks way up. Whew, I guess that means the housing "crisis" is over. Not that I'm upset about that, mind you. Not in the least. I'll take a 300 point gain in the Dow any day, and I'm not above doing a little dancing in aisles myself. In fact, I'm feeling so good that I thought I might just head down to the men's room at the local airport to see if there were any parties going on. Maybe do a little toe-tapping, if you know what I mean.

Meanwhile, let's just see what happens with housing. If nothing else, the rate cut should be good for the home equity loan market, that is if anyone has any equity left in their homes (and there are any home equity lenders still in business). Other than that, I don't what any of this means except that health care costs keep rising, oil prices keep climbing, budgets keep stretching, and paychecks are getting thinner and thinner.