Two helpful articles on the current status of the financial system

I am sure you have been reading a little bit about what is going on with the financial system and the possible bailout that could take place. To keep you updated on the financial system and what is going on I found a couple of articles that I thought were worth sharing.

The first, is an interview that just took place today between Glenn Beck and Dave Ramsey. I respect and listen to both of these men and it was interesting to get their take on what is happening right now and where things may go.

http://www.glennbeck.com/content/articles/article/196/15906/


The second article, is more of an informational one from the Wall Street Journal. It gives you a breakdown of the revised bailout bill that looks as though it will be passed. This link is only good for 7 days.

http://online.wsj.com/wsjgate?subURI=%2Farticle%2FSB122286874792094117-email.html&nonsubURI=%2Farticle_email%2FSB122286874792094117-lMyQjAxMDI4MjAyMTgwNjE4Wj.html

How Mortgage Rates Responded To The "No" Vote On The Bailout Bill

Monday afternoon, the U.S. House of Representatives defeated the $700 billion "Bailout Bill", surprising Wall Street and the world.

The Dow Jones Industrial Average responded by falling 777.68 points -- its largest one-day loss in history and, this morning, every newspaper in America is covering the story as front page news.

Lost in the coverage, however, is how the "No" vote created a terrific opportunity for mortgage rate shoppers.

Yesterday, as money fled the tanking stock market, most of it ended up getting parked in the relative safety of government-backed bonds which includes, of course, the mortgage bonds. This rising demand for mortgage bonds caused rates to fall.

To investors, stock markets represent risk and bond markets represent safety. So, when market sentiment changes, as it did yesterday, Wall Street players often shift their dollars from one forum to the other. This is why yesterday's stock sell-off was good news for mortgage rate shoppers -- the added demand for "safe" securities drove down rates.

Conforming mortgage rates were lower by about an eighth-percent Monday.

Now, today, mortgage rates are opening flat, suggesting that markets are in a Wait-and-See Mode. Wall Streets knows that the defeated bill will re-emerge later this week and, when it does, expect traders to respond accordingly.

If the new-look bill is viewed as favorable to U.S. businesses without harming taxpayers, expect stock markets to improve and mortgage rates to rise. If the bill fails to accomplish that goal, however, expect mortgage rates to improve.

Looking Back And Looking Ahead: September 22, 2008

In a historic week for American Finance, mortgage rates rose considerably, reversing a 3-week trend through which rates had fallen.

The U.S. Treasury is the biggest reason why most conforming mortgage rates increased by a half-percent.

Hank Paulson's government group helped to restore investor confidence that had steadily eroded from concern to fear since July 2007, before succumbing to outright panic last week.

Wall Street nerves were so frayed that at one point

Wednesday, yields on government bonds were actually in the negative; investors were paying the U.S. government to hold and protect their money in exchange for a guaranteed loss of investment.

After the Treasury's interventions, however, a sense of normalcy returned to Wall Street. Money poured back into stocks, siphoned from the bond market and that pushed rates higher.

This week, it's anybody's guess what will happen.

From a data perspective, it's light -- there's Existing Home Sales, New Home Sales, and not much else. From a policy perspective, however, the week is heavy:

-- Congress is expected to authorize "hundreds of billions" for market support
-- Ben Bernanke and Hank Paulson will testify before the Senate Banking Committee
-- 7 members of the Fed are making public appearances

With so much rhetoric, it's difficult to predict how mortgage rates will perform this week. The stock market may be the best predictor of rates.

If stocks are up, risk-taking is back in vogue and the bond market should suffer, pushing mortgage rates higher. By contrast, if traders stay clear of stocks in search of safer investments, mortgage rates should fall.

(Image courtesy: Wall Street Journal)