At the worst of Thursday, the lowest-fee, 30-year fixed-rate mortgages touched 6.25 percent (yes, that’s a “six”).

The jump is a technical affair likely to reverse, and certainly not a sign of economic recovery. Long-term rates had been in the same place for four weeks, with the bond market running out of buyers at near-record lows and overdue for counter-move. All credit markets are clogged (another portion, the $360 billion “auction-rate securities” market locked-up altogether this week), and even government agency mortgages are difficult to distribute.

Not much in new data, all poor: the NFIB small-business survey fell to recession, as did the New York “Empire” index; January industrial production was flat, and the University of Michigan index of consumer confidence this week fell to 69.4, a 16-year low.

The top show: Valentine’s Day in Congress. Securities and Exchange Commission Chairman Christopher Cox, Treasury Secretary Henry Paulson, and Federal Reserve Chairman Ben Bernanke.

There was no massacre, but some slapping around. Sen. Robert Casey (D-Pa.) said: “Mr. Bernanke, let me give you a heads-up. The next time you see something coming, you do something about it. You’re a year-and-a-half behind this housing thing.”

I expect that’s the first time in Bernanke’s working life that anyone has spoken to him that way.

Cox had the grace to look worried throughout. Good idea. Wore his lucky socks and necktie.

Paulson repeated his sole concept: “Losses should be identified and written down. Those institutions that need capital should raise it.”

The losses are too big and capital is too scarce, but reality doesn’t bother this blunderbuss a bit. He is ex-Goldman, has access to all the inside financial information, cannot possibly misunderstand the severity of the situation, but has no plan but to ride it out.

The senators turned to Bernanke for an estimate of losses ahead. He burbled about the difficulty of valuing opaque and illiquid securities for which there is no functioning market; then about the Federal Accounting Standards Board three-level prayer-based model, blah, blah, blah….

No senator asked the obvious: If you and your army of examiners and analysts cannot value these assets, then how in hell did they get on the books of your banks?

More are coming. In Bernanke’s written remarks: “Money center banks and other large financial institutions have come under significant pressure to take onto their own balance sheets the assets of some of the off-balance-sheet investment vehicles they had sponsored.” Translation: they have to take back the bad deals they sold. If the investors instead dumped them at current-market prices, the financial system would be toast.

Paulson demands write-downs while the guy next to him talks about a reverse flood of bad assets that cannot be written down. Dishonesty destroys confidence.

Bernanke has executed the standard plan, and very well: when markets can no longer finance the banks, the Fed should step in to do so. Then hope that time and short-term rate cuts will allow the markets to heal by themselves.

So far not so good. The credit problem has now moved beyond the banks: the markets for securitized credit are seizing up the way the banks did last fall, and credit starvation is deepening. Ours is the most credit-dependent economy in the world and in history, and by a wide margin. The strong economic expansion during 2004-2007 (and not merely in housing), we now know was fueled by the largest bubble of foolish lending since the 1920s. There is nothing wrong with Bernanke’s standard plan except how we will get through the starvation to healing.

Everybody wants market-based solutions, but what to do with a market too badly broken to heal itself? The first test of inventive government intervention will come in the next two weeks. If we get an effective bailout of the bond insurers, MBIA and Ambac, the market relief may cause our rates to rise, but it will be worth it. 

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

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