According to the Washington Post the treasury is thinking about getting involved in the mortgage industry:

Under the initiative, the Treasury would offer to buy securities that finance newly issued loans for home purchases, according to the sources. But to participate in the government’s program, mortgage lenders would have to set exceptionally low interest rates, for instance, no more than 4.5 percent for traditional, 30-year fixed-rate loans.

So let me see if I can understand this. There’s general agreement that bad mortgages (sub-prime) is one of the key things that lead to this crisis. Now the government is going to buy up the old mortgages and mandate more sub-prime mortgages? WTF?

The intention of course is to boost the Realty market which is in major trouble right now. And the National Association of Realtors is likely the genius behind the plan. But the problem is that too many people got mortgages they couldn’t afford because the rates were low and the fed was encouraging lenders to give away money. Now we have had a correction and there’s less demand for homes (a good thing) but the government is going to artificially lower mortgage rates to increase demand, in-turn increasing the risk of bad mortgages.

I don’t see how this is going to turn out well.