Believers in "V"-shaped recovery gave it up this week, as did many hoping for any near-term recovery at all. The 10-year T-note broke cleanly through its post-May 3.28 percent low, taking mortgages below 5 percent, also for the first time since spring.

The manner in which the bond market cascaded said more than the fact. There was no new, single-piece, trend-changing report, just the cumulative weight of news describing an end to the May-July bright interval, and the beginning of an economic flattening or outright stall sometime in August.

Further, rates broke down before the biggest news of any month (payrolls), and in advance of next week’s Treasury auction of another $71 billion in long-term paper.

Today’s payroll losses were half-again worse than expected, down 263,000 and canceling any improving trend. Sectors you’d think had bottomed have not (construction employment is still free-falling at a 12.6 percent annual pace).

Ones you’d hope would hold have not (government jobs fell 53,000 on state and local budget cuts); and the one sector showing growth merely exposed foolish excess (health care added another 19,000 jobs in September, positive 559,000 since the recession began).

If we are stalling, the administration’s and Fed’s all-according-to-plan position will be indefensible, and demands for new stimulus will rise. Paul Krugman and the "silly-left" aside, few have the stomach for more congressional borrowing and random cash-hosing.

We need to get out of the policy box, and we have examples of alternate strategy in Europe and China and forgotten lessons from our own past.

First, the problem: Credit shortage has strangled recovery; households are in bunkers under collapsed net worth, and not coming out until home values are safe.

We speak in the U.S. of a delicate Fed: pump-priming, fine-tuning or jump-starting. Adding to metaphor stew, think of this Great Recession as a snow drift we must drive through. At the turn of the year, China gunned the car and simply blasted through, while we stayed on standard plan, control paramount, fussing about overdoing. …CONTINUED

Now we sit high-centered — no matter how much more traditional stimulus-gas we apply, we’re still spinning our wheels. The force behind China’s blast: instructing banks to make loans. The chaos and error in making them was far preferable to not making them.

European finance ministers yesterday announced that all 22 big banks there had passed their stress tests, everything OK. Nevermind the bodies under the rug. These banks are not making loans in China’s volume, but they are lending, in their proper role as public utilities, to be repaired over the next decade or two.

1. Commercial banks here should be placed immediately on capital forbearance and long-term capital-raising plans. Knock off the "make my day" threats to banks trying to make sound commercial real estate loans.

Boards and chief executive officers should be advised to begin prudent lending at once, and that any found taking advantage of forbearance will be removed — none of this Ken Lewis slinking away in his own sweet time.

2. Drop this nonsense about new bank-regulating agencies: The existing ones are competing for "Who’s toughest?" and have frozen the system. Proceed (now, please) with credit-rating reform, a mandatory clearinghouse for derivatives, and juicing-up the U.S. Securities and Exchange Commission.

3. Housing. We’re either going to assist market absorption, dropping the pretense of loan modification, or stay in a hell of a lot of trouble. Fannie and Freddie should provide financing for any conventional foreclosure — their loans or anyone else’s: 5 percent down for a well-qualified owner occupant; 15 percent for an investor-buyer; no appraisal; rehab before market (all per FHA in 1987).

Return Fannie and Freddie underwriting to some semblance of the 1970s to the 1990s, especially for investors and asset-heavy applicants. We are converting from 69 percent national owner-occupancy to something under 65 percent, and each home converted requires an investor-buyer.

Roll back the condo mortgage panic. Remove second-mortgage roadblock to short sales. Figure out a semi-government guarantee for jumbo securitization.

Nothin’ to it … piece of cake.

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


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