Author: George Yacik

Want To Solve The Fannie-Freddie Quandary? Do Nothing

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


There have been lots of ideas about how to restructure Fannie Mae and Freddie Mac, the twin government-sponsored enterprises (GSEs) that purchase the vast majority of residential mortgage loans originated in the U.S. But the one idea that I haven’t heard mentioned, which seems to make the most sense, is: Don’t do anything.

The two agencies used to be hybrid public-private entities, their stock owned by investors but with an “implied” government backing of the mortgage-backed securities they sell. Both of them failed during the global financial crisis, burdened with billions of dollars of bad subprime loans, and were taken over by the government in 2008. Although they remain in conservatorship to this day, they remain the backbone of the American residential mortgage banking system. Continue reading "Want To Solve The Fannie-Freddie Quandary? Do Nothing" →

Talk About Chutzpah

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


If you’ve ever wondered why so many of today’s American college students seem to live in a self-delusional world where they take little personal responsibility for anything that goes wrong in their lives, you don’t have to look any further than the professors who teach them.

In a recent op-ed column in the New York Times, Susan M. Dynarski, a professor of education, public policy and economics at the University of Michigan, takes the Trump Administration to task for its failure to take the proper steps, in Ms. Dynarski’s eyes, to fix the student debt problem, as if Donald Trump himself caused the crisis.

Nowhere in her lengthy critique does she ever address head-on the real culprits in the student debt crisis: the government agency that made these loans in the first place, and the colleges and universities that have exploited these loans in order to drive up the price of higher education, forcing millions of students and their parents into debt if they want to attend college.

First, she says, “the Education Department has weakened accountability for the companies that administer student loans,” specifically calling out Navient, formerly a part of Sallie Mae. Now privatized, Navient is the largest servicer of government student loans. As such, Dynarski says, “companies like Navient are the face of the student loan system, and often the source of enormous frustration for borrowers.” Continue reading "Talk About Chutzpah" →

Want A Federal Student Loan? Just Shake My Hand

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


Fans of the 1970s classic sitcom “The Odd Couple” might remember the episode in which Oscar Madison introduces his roommate Felix Unger to his sleazy insurance agent from Lloyd’s of Lubbock, whose come-on is that he offers you a policy just by shaking your hand. It appears that Lloyd is back in business, only now he’s working for the federal government. Or at least his underwriting guidelines have been adopted by the U.S. Department of Education.

The Wall Street Journal published a long story on Monday about the federal Parent Plus loan program, which it says “asks almost nothing about its borrowers’ incomes, existing debts, savings, credit scores or ability to repay. Then it extends loans that are nearly impossible to extinguish in bankruptcy if borrowers fall on hard times.”

And lots of them have. As of September 2015, 11% of Parent Plus borrowers hadn’t made a payment on their loans in at least a year, which “exceeds the default rate on U.S. mortgages at the peak of the housing crisis.” And the problem is only going to get worse. The number of families with Parent Plus loans has jumped more than 60% since 2005, the Journal reports, to 3.5 million at the end of last year. They owe a combined $77.5 billion, or an average $22,000. Continue reading "Want A Federal Student Loan? Just Shake My Hand" →

Did The Fed Jump The Gun? Now What?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


Based on the recent direction of the U.S. economy and the drop in Treasury bond yields to six-month lows, it would appear that the Federal Reserve may have been a little too hasty in raising interest rates and ending monetary accommodation. So how will the markets – both stocks and bonds – react if the Fed has to swallow its pride and need to stuff the genie back in the bottle?

As we know, since Donald Trump was elected last November, the Fed has raised the federal funds rate twice, plus promised at least two more increases by the end of this year. At the same time, it’s also said that it plans to start trimming its massive $4.5 trillion securities portfolio before year-end. All of that action has been predicated on the economy growing and potentially over-heating – i.e., causing too much inflation – under President Trump’s stimulative policies, including tax cuts, deregulation and repealing and replacing Obamacare.

But what happens if those assumptions don’t actually become a reality, which is what seems to be happening right now? Will the Fed suddenly start lowering interest rates again, or at least put off its plans for future rate increases? And will it also put on hold its balance sheet reduction plan? Continue reading "Did The Fed Jump The Gun? Now What?" →

So You Still Think The Fed Doesn't Need Oversight?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


After this latest episode involving the disgraced Federal Reserve Bank of Richmond President Jeffrey Lacker, who resigned for being less than truthful in the Fed’s probe of a leak to an analyst five years ago, are there still some people – outside the Fed, that is – who still believe the central bank is above the law and shouldn’t have to answer to Congress?

If you haven’t heard by now, Lacker – who was slated to resign later this year anyway – suddenly stepped down as the head of the Richmond Fed after he admitted to speaking to an analyst at Medley Global Advisors in 2012 the day before it published a report that contained confidential information about Fed policy discussions. You might remember that the leak, when it first came to light several years ago, “sparked a criminal investigation, prompted outrage on Capitol Hill and deeply embarrassed the Fed,” as the Wall Street Journal reported. Continue reading "So You Still Think The Fed Doesn't Need Oversight?" →