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Stop Talking, Just Do It
By: Dr. Charles Lieberman
Date: 2/17/2009
Investors have sent the Treasury and Federal Reserve a very clear message; stop talking and start implementing policies to help the economy and the credit markets. It is not necessary to complete a fully formulated comprehensive recovery strategy, nicely boxed up in a single package with a carefully knotted bow on top before anything is done. There are unambiguous components that would be very useful to any recovery package and the sooner they are implemented, the better. Passage of the fiscal stimulus package is a very good step. Now, help credit markets.
It is clear that policymakers are talking too much and not doing enough. The markets rallied in response to a false rumor that mark to market accounting would be suspended, although some people dispute whether that would be a good move. The market rallied when a story leaked that Treasury would subsidize monthly mortgage payments of any restructured mortgage. Investors held their breath when President Obama promised a detailed plan to be announced by his Treasury Secretary. When the Treasury Secretary spoke about his outline for plans that he intended to put together, the markets sold off in absolute frustration. How much clearer can it be?
There are some absolutely unambiguous actions that can be taken to improve credit markets. The Fed promised to buy $500 billion in mortgage securities in the first half of this year, which quickly drove 30-year fixed rate mortgages from 5.5% to below 5%. According to its latest H4.1 statement, just $7.4 billion have been bought, none in the past week, and mortgage rates have risen off those recent lows. The TALF program, authorized November 24, 2008, will buy asset backed securities, including credit card, student and small business loans and been expanded to include CMBS. This program is scheduled to end December 31, 2009. However, its start date has yet to be announced. So is it a surprise asset backed markets are still not working? In contrast, the Fed announced and quickly implemented a commercial paper buying facility and commercial paper issuance has picked up. Similarly, the Fed has achieved quick success in bringing down interbank lending rates. It is safe to say that actions peak far louder than words. The Fed must implement investment programs in any credit market it wishes to revive, even as it figures out what else may be needed.
Treasury Secretary Geithner has spoken of the need for aggressive and timely action. He recognizes mistakes will be made. His predecessor certainly established that precedent. But it is time to get started. Time is of the essence.
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