A good-news week in the credit patch — an exceedingly odd mix, but good.

Weakness in Europe, authorities in China tightening into a bubble, a softening data-pattern here, an add to mortgage supply and a woozy stock market conspired to hold lowest-fee mortgages to 5.25 percent, the post-August high. That despite Treasury auctions of $81 billion in long-term paper. Bond ghouls love lousy news.

The National Federation of Independent Business survey (www.nfib.com, "SBET") in January found no meaningful improvement in a small-business "L" non-recovery, and overall retail sales poked along at a 0.4 percent gain.

The euro-zone trouble with its weak members entered a new phase. Germany said at mid-week that it would intervene to prevent a Greek default, and interest rates and stock prices here rose fast, fear abating.

All of that is reversing as no one in Europe has said how Greece might be supported. Nor has anyone in Greece offered a credible plan for austerity: meeting euro treaty requirements would mean semi-permanent poverty (as it would for the rest of Club Med); to depart the euro for necessary currency devaluation would mean recession, but recovery one day. Poverty doesn’t sell well.

The euro-game now resembles the months before Fannie and Freddie required a total U.S. guarantee, as markets crashed one inadequate backstop after another. Overnight, the capacity of the euro-strong to bail out anybody has weakened: Fourth-quarter European GDP rose a negligible 0.1 percent; in Germany itself, zero.

Germany’s long-running cognitive dissonance … to take over Europe, or to leave it?

Here, a great many people still worry that the Fed’s effort to get credit going will result in inflation. The Fed has tripled the monetary base, but that money can reach the economy only via loans, and bank lending in January is still in free-fall (12 percent annual rate of contraction).

Nevertheless, Federal Reserve Chairman Ben Bernanke this week had to explain to Congress how the Fed would withdraw all this monetary stimulus. The gods were merciful: Snow saved him from going, and he explained by Web posting. …CONTINUED

The Fed will have trouble with timing: Given limits to predicting the future, it will tend to be late to withdraw, and then overdo it, but nobody should worry about its ability to pull back. Some things are hard for the Fed, some easy.

Rebuilding financial markets after a systemic failure is much like one of those game shows in which you’re given a tube of Elmer’s, a broken iPod, five trash cans, a rear-view mirror, the engine from a ’67 VW Beetle, and three hours to build a replacement for the Hubble telescope.

Withdraw money? Just swing the hammer: Sell the MBS and bonds the Fed bought.

Speaking of which … the whole mortgage world (and several other minor planets) have wondered what will happen when the Fed stops buying mortgage-backed securities (MBS) in March. The private credit system is just as broken now as July 2007, utterly unable to provide an adequate supply of mortgages. Very good news: The authorities have noticed, and acted.

In an operation too technical for Congress to object (just try to appeal to the Tea Party half-cups in your district by yelling: "Freddie Mac is buying from its own MBS, participation certificate guarantees, those loans now 120-plus days delinquent! To arms!!") Fannie and Freddie will inject $100 billion to $200 billion into the markets for MBS or Treasurys. Doesn’t much matter which. That will buy time, supply, and keep rates down until … ummm … May?

This delicate move has the fingerprints of the Fed, which dares not buy more for its own account lest Congress notice, not unless the economy dips and it’s time again to elbow women and children from the lifeboats. Also Geithner’s.

The White House? Financial Czar Larry Summers now responds to all recovery questions just like my last building contractor: "Six months."

Christina Romer, a very fine economist, chair of the Council of Economic Advisors, has no power and the unfortunate appearance of Aunt Bee from TV’s "Mayberry R.F.D." The unemployed and frightened are not up for grins.

If signs of economic stall are confirmed, this group may at last understand that hyper-tight credit will not repair a period of too much credit, and recalibrate.

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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