Everybody is talking about the Big Bailout!  I received calls from journalist today asking my opinion about how the bailout will affect mortgage rates.  I had frantic calls from clients believing that when the BIG BAILOUT comes, the rates will drop!

 

The answers are not so clear.  However, simply put, if there is no money to lend out then the interest rates will continue to go up.  It is the law of supply and demand.  If I have two apples and 20 people want them, well I can charge as much as I can get for that apple.  When the apples again begin to fall from the trees, I will have more apples to sell as well as competition from others’ with apples to sell.  So, I will have to lower my price. Get it?

 

Moving forward, if the bailout does come, the interest rates will not fall immediately.  They will begin to drop to normal levels when the money begins to flow again.  What makes the money flow is when banks and corporations are able to borrow money on the short term. The flow of money irrigates the lending system just like water irrigates the apple orchards.

 

From storytellers, this is worse than the Great Depression. Since this has never happened before, you cannot listen to politics, historians or the media. We just do not know what will happen in the near or long term.  I say, go home tonight, watch Entourage or Ugly Betty on the net, and have a few chuckles.  Just get up tomorrow and pack your lunch and bring a to-go cup of coffee.  (That means you, Debbie).  Right there you saved about 10 bucks!

 

Dale Siegel