Mortgage rates bottomed at 6 percent early in the week, down 0.75 percent in four days, and are back to 6.25 percent now (lowest fees). Five-something loans will have to wait for stabilization in global credit or effective federal intervention.

The depth of the recession ahead will depend on the job market, and the newest data shows surprising resilience: New claims for unemployment insurance are still inside the 60-day range, just under a half-million weekly. Since the onset of credit collapse on Sept. 15, the real economy has resembled the adversary of the great swordsman, his blade so sharp that his opponent, neck cut through, did not realize the damage until he bent over. Comrades, until the authorities resolve this panic, stand straight.

There is a chance, and a good one despite layoffs and bankruptcies ahead, that the worst of the economic damage will be confined to our wealth, not the engines of production as in the ’30s. Wealth we can rebuild; whole economies are harder. The "wealth effect" will run in reverse, diminishing consumption and investment in expansion. However, correctives abound: Topping the list, it will be a pleasure to have so many baby boomers deferring retirement, working beside me into our 70s.

Another corrective: As asset prices fall, they find buyers. I’m amazed at the 5.5 percent increase in sales of existing homes in September. These were contracts written in August, and the market shocks since will hurt the months ahead, but the absorption of foreclosures is extraordinary. All markets describe multiple offers at entry-level prices.

If you’re caught in a once-in-a-century event …, might as well enjoy the details.

In the two weeks since the U.K.’s Gordon Brown led the way to bank recapitalization, the world total has grown to about $2 trillion: $70 billion U.K., $55 billion Norway, $700 billion here, $70 billion Switzerland …, China, Russia, Malaysia, Singapore, Middle East … more coming as necessary. We did some more of our own today to take heat off the FDIC fund, with PNC acquiring the wreck of National City with $7 billion in TARP money.

All-important inter-bank Libor has fallen from near 5 percent (versus Fed cost-of-money at 1.5 percent!) to 3.25 percent, but stopped there. The panicked run to short Treasurys abated, with the one-month yield rising from 0.05 percent last week to 0.37 percent, but today back to 0.22 percent; 30-year bonds today briefly fell below 4 percent, the lowest since first sold in 1977. One part of the Fed-Treasury effort to bust up panic: If the herd wants Treasurys, drown it in paper; by the end of next week the Treasury will have raised an incredible $600 billion in 20 days.

Speaking of cash … way back there in August, the world’s great problem was inflation, which the Fed had been fighting with very tight monetary policy, money growth near zero since oil prices exploded in 2007. Since mid-September, the monetary base (St. Louis Fed) has increased by 50 percent, and the Fed will hose out as much money as long as necessary. If confronted by an "Ah-HAH! INFLATION!!!" fruitcake, and feel brave, say back: "We’re fighting deflation. You might pray that reflation works." Those who ridiculed the deflation-antidote theories of "Helicopter Ben" Bernanke should take a moment to give thanks that he’s in the chair.

Financial markets are resisting treatment, even recapitalization, because the Great Run of ’08 has morphed into the Mother of All Margin Calls, and forced selling of everything. Oil diving from $150 to $80 was good consumer news, but $65 and falling is a catastrophe for producing economies and their leveraged investors. Lest you take pleasure in their pain, they used to have a lot of money to invest in American mortgages and stocks. The same applies to the euro, from $1.60 in freefall now passing $1.26, U.K. sterling from $2 going by $1.58, and commodities broadly down by half.

To visualize this margin-call cascade, think of a game of standing dominoes in a big room, exact borders vague. The dominoes are invisible, the length of lines and points of cross-connection unknown, dominoes coming into view only as they fall. The invisible game must play itself out. However, the authorities are already standing up the fallen and will inevitably win in the end — as will we all, less wealthy but wide awake.

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


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