I’ve been asked why Fed rate cuts have not resulted in lower mortgage rates. This question came up from two clients yesterday. Last night I sat down last night to write about it, and ran across this post in Transparent Real Estate.

Pat does such a great job laying this out, I was thinking I’d just post a link to his site with a trailer “nuff said.”

But this morning, Andrew Ross Sorkin commented on the connections that are being made between this credit crisis and the collapse of junk bonds in the late 80s (I was in New York and our risk arb fund got hammered when it all unraveled).

Sorkin quotes Milken and his warning about over-regulating, which would have the effect of protecting the oligarchy that Pat identifies in his conspiracy theory.

Milken uses an analogy about medieval Europe and the conflict between the nobles and merchants to make his point. I’m drawn to a more American analogy that has also received some commentary following the bailout of Bear Stearns: Ayn Rand. It’s a bit ironic that in Charlotte, home to some of these “oligarchs,” there was a recent grant to make Ayn Rand required reading at UNC Charlotte.

It’s pretty clear that our financial system is staring at some unfamiliar waters. When the Fed lowers rates, it should result in more projects getting financed. How long will it take for competition to heat up and take advantage of the current gap between the Fed and mortgage rates?

Related posts:

1. Mortgage Market Guide for Week of March 10