Tight lending remains elephant in room

Federal Reserve Chairman Ben Bernanke's extraordinary speech on Monday instantly knocked 10-year Treasurys below 3.35 percent, where they have stayed. Lowest-fee mortgages are 5 percent.

Economic data increased the tilt in markets toward concern for the recovery. Retail sales flattened to a 0.2 percent gain in October (ex-autos), breaking an apparent up-trend. New claims for unemployment insurance were unchanged at 505,000 last week, but held improvement from early fall.

The index of leading indicators rose for the sixth-straight month (0.4 percent in October), yet another traditional index measuring an alternate or Jurassic universe.

Even the stock market paid attention to new housing data, and sank. Versus expected improvement, October housing starts crashed 10.9 percent and new building permits fell 4 percent.

New purchase mortgage applications fell another 4.7 percent last week, completing a five-week collapse to the lowest numbers since 1997.

One of the many oddities this year has been thundering silence from the Obama administration regarding a deepening shortage of credit so obvious to everybody else. Bernanke at last addressed the issue in his two-part speech about credit and jobs, but gaps and contradictions in his comments left large questions.

He opened with this chiller: "The flow of credit remains constrained, economic activity weak, and unemployment much too high. Future setbacks are possible."

Then he went straight at the details: We have seen some credit improvement (interbank funding, interest-rate spreads, stock prices and securitization), but "credit remains strained for borrowers who are particularly dependent on banks, such as households and small business."

Thank you. Eleven months with an elephant in the living room, and you have at last mentioned the poor thing. ...CONTINUED

All rights reserved. This article may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this article without permission is a violation of federal copyright law.