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.

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

Previous to these comments we’ve been stuck with bankers insisting that nobody wants to apply for a loan. Bernanke: "Since the outbreak of the financial crisis, banks have tightened lending standards by more than would have been predicted by the decline in economic activity alone."

Roger that. Confirmation of widespread behavior by bears in forests. He then offered to explain why: 1) in a hangover from panic, banks are staying more liquid than necessary, 2) banks are conservative from worry that regulators may toughen capital standards, 3) bank loan securitization and off-sheet flipping is still impaired by broken markets, and 4) new accounting rules in January will force banks to move a large volume of previously securitized assets back onto balance sheets.

Bernanke then began to run out of gas. "We continue to encourage banks to raise additional capital to support their lending." Might as well encourage them to sprout wings. Capital will not be available until fear of further losses abates, and losses will not abate until loans are available, and loans will not be available until capital is.

The Fed will be friendly to commercial loan workouts: "A loan should not be classified as impaired based solely on a decline in collateral value." That principle has limits in common sense, but is a good tactic to stave off foreclosures and fire sales.

Before fizzling out altogether, Bernanke summarized the employment situation: "The best thing we can say about the labor market right now is that it may be getting worse more slowly." The "la-la" boys in the stock market might read that twice.

In conclusion: "Banks’ reluctance to lend will limit the ability of some businesses to expand and hire. I expect this situation to normalize gradually, as improving economic conditions strengthen bank balance sheets and reduce uncertainty."

I admire Bernanke. He has been the hero of this crisis, under assault now by Ron Paul and crew. However, I do not see any gradual improvement in households or real estate assets, and I don’t know whether we or banks will normalize on our own.

The absence of a clear path to recovery in Bernanke’s speech makes me think he’s not sure, either, and needs a hand from the "absent" administration.

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

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