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Fantasy Island – (US) – The Federal Reserve today unveiled yet another plan to distort the housing industry and stave off a rebound in the marketplace by using Fannie Mae and Freddie Mac to encourage banks to offer mortgages as low as 4.5% – nearly a full point lower than what ‘unencouraged’ banks have currently priced the risk of mortgage lending in the free market. Undaunted by the volume of empirical data indicating that this very policy of offering below market rates to sub-prime credit borrowers originally caused the over-extension of consumer credit and sharp inflation in housing prices in the last decade, Treasury officials said today (with a straight face) that lowering the cost of lending would halt the slide in housing by enabling consumers to borrow larger sums of money. When asked why this “preferential” policy would only extend to those “purchasing” a home and not homeowners who wished to refinance their debt, Tresurers stared blankly into the cameras. Apparently the idea of letting existing mortgage holders lower their monthly payments, thereby freeing up capital to spend on other consumer goods and savings, had not occurred to the Idiot Savants running the largest public-debt-backed Bank in the world.

One positive feature of the Federal Reserve’s “save some, damn some” lending policy is that “document their income and afford their monthly mortgage payments, steering the government away from backing loans considered risky,” according to a report from the Wall Street Journal today. Funding for such low rates is expected to be created from thin air, or in Treasury terms, the issuance of government debt that would be repaid by taxpayers in the unforeseen future. In essence, the United States government would be acting as a guaranteed buyer of the mortgage, while letting banks snap up application and processing fees for issuing the so-called mortgage. No answer was provided to the question of “which” taxpayers would, in fact, be likely to be repaying this debt, although it is widely expected to fall on the “rich” who can “afford” to pay their fair share of everyone else’s housing needs.

Treasury Secretary Hank Paulson, caught with his pants down, told the press that, “The most important thing we can do to mitigate foreclosures and progress through the housing correction is to reduce the cost of mortgage finance, so more families can afford to buy a home and so homeowners can refinance into more affordable mortgages.” Apparently nobody told the Treasurer that the Federal Reserve did not intend to offer the rates for refinancing; or, as is more likely, nobody really knows what they are doing and therefore any statement made by government officials is both true and false at all times.

Some skeptics expressed concern over the plan, which was widely supported by lobby groups such as the National Association of REALTORS. Critics worried over the fact that neither the NAR nor the Fed seem to have answered the question of how to reconcile the increasing unemployment figures with the need for buyers to “still qualify” to repay these loans. NAR’s spokesman responded with a muttered, “Plan good… specifics later,” when asked to comment on how unemployed buyers were supposed to absorb the excess housing supply, while foreclosures continued to rise.

In an irony only possible on Capitol Hill, one of the major architects of the current government-sponsored meltdown, Massachusetts Representative Barney “Roll the Dice a Little More” Frank, accused Treasury Secretary Paulson of not spending the taxpayer’s money fast enough. Reading from the original bailout bill passed by Congress this Fall, Frank reminded Mr Paulson that he had been authorized to spend the $700 billlion appropriations more freely, quoting “the bill which says, ‘Write it down, give them assistance,'” adding later that “We have a very large pot that was intended to be part of that effort that is going untapped.” Congressional staffers were momentarily surprised by these comments, whispering amongst themselves, wondering just where Mr Frank had stashed that pot, and whether he intended to smoke it with them afterwards.