The credit panic appeared to stabilize on Wednesday, interest rates rising a bit, but the crunch found new legs today on news of sinking retail sales. At week’s end conforming mortgages are a hair under 6.5 percent, the gap to vanilla jumbos closing to roughly a 0.5 percent premium, half of the worst in August. Everything else — even high-quality off-brand loans — is as-was: pricey or gone.

The Fed meets Tuesday, will cut its overnight rate a bit, will have something murky and inane to say about following developments as they develop and taking appropriate action when appropriate — all completely as expected by the markets and built into the current rate structure.

The next big move in long-term rates will depend on economic data weeks away: We won’t get trend confirmation of last Friday’s weak employment data until the next report on Oct. 5. Thursday’s report of no change in early September unemployment claims says that hiring may have slowed, but we’re not yet facing a spike in layoffs.

We won’t get comprehensive housing data until well into October, and even then, news of deepening trouble will not push rates lower unless companion reports show weakness spreading into the larger economy. The preliminary data says that the credit crunch didn’t push housing off a table, but the July slope of deterioration steepened in August and is doing so again in September. Just not quite vertical.

The astonishment here continues at the absence of grip and clarity among the authorities about the extent and character of the credit crisis. Simon Johnson, director of International Monetary Fund research, told the Herald Tribune that the subprime crisis has not been resolved, and the IMF doesn’t understand why.

The European Central Bank poured $100 billion in 90-day money into its banks — an extraordinary throwing-in-of-towel, as central banks typically inject liquidity only overnight or for a few days. On that same day, Bank of England governor Mervyn King derided all of these liquidity injections as “… ex-post insurance for risky behavior” that would only encourage more. Two days later, last night, the BOE had to bail out the UK’s largest mortgage lender — the first bank bailout there in 30 years.

Federal Reserve Chair Ben Bernanke traveled all the way to Europe to deliver a re-print of a 2-year-old speech on the “savings glut,” and offered not a syllable of insight into current matters. He cannot tip his policy intentions; however, in a moment crying for leadership he might have had descriptive things to say, defining the edges of the crunch. He employs the largest group of economists anywhere, and they must have some clues. I hope.

The Secretary of the Treasury, Hank Paulson, late Grand Poobah of Goldman Sachs, said he is focused on the commercial paper evaporation (I will sleep so much better tonight), and on Wednesday gathered a group of mortgage wholesalers, asking them to offer more products to help prevent foreclosures. He knows perfectly well that the Structured Finance department at Goldman and its cousins are the source of such products and are paralyzed in the credit panic, able to wiggle only a single finger to the crowd, pointing blame for this fiasco at somebody else.

Paulson of all officials has the capacity to find out what and where the trouble is, and to understand it, and to offer measures to repair it and to prevent its recurrence. “Playing dumb” hardly describes his contributions in public in six weeks of crunch.

The very worst of the blame-shifting profiteers, led by commercial bankers, claim that the whole problem here is the practice of selling loans, the maker immune to the pain of the ultimate holder (this theory joined, incredibly, by Bernanke). Loans have been sold since the beginning of banks, and securitized and sold in vast quantity for 50 years — successfully, an essential component of economic growth, so long as properly underwritten at transfer, not merely at origination. Who, Mr. Paulson, failed at that?

The call here continues for blanket-yanking and sunshine: Re-underwrite to discover who sold what to whom, where it is now, and who has loaned how much against it.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at

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