When last I checked, the Official Financial Indicator of the Panic of ’08, the TED spread, had dropped below 3. The TED spread measures the gap in interest rates between three-month T bills and three-month LIBOR, and it hasn’t closed below 3 since Sept. 26. Of course, it was in the 1 to 1.1 range in the weeks before the Lehman bankruptcy, so it’s still way high. But CalculatedRisk has a whole long list of other improving credit indicators. Things are getting better. For now at least.
There is a big exception to this Big Ease, John Jansen points out: Fannie’s and Freddie’s mortgage-backed securities. One reason, as Stephen Gandel was among the first (maybe the first) to point out last week–right here on TIME.com–is that the new temporary federal guarantee of unsecured bank debt has reduced the relative attractiveness of Frannie’s MBSes, which for a couple of months were unique in their federal guarantee (granted by Congress over the summer) but now have to share it with others.
So interest rates in general are headed down, but mortgage rates aren’t. This isn’t great news for the housing market, but may be better for the economy. Arnold Kling complained today that the actions of the Fed and Treasury have so far amounted to
an attempt, as in Japan in the 1990’s, to prop up a failed industrial policy. In the U.S., the locus of industrial policy has been the housing and mortgage industries. In Japan, it was the manufacturing export sector and an inefficient domestic retail sector. In both Japan and the U.S., the financial sector was used as a government tool to sustain the industrial policy. In both countries, the refusal to back out of the failed industrial policy is a recipe for stagnation.
Well, at least one government decision in the past few weeks appears to be having the effect of steering investment out of housing and into other sectors.
Update: In perhaps the most encouraging news of all, The Brokers With Hands on Their Faces Blog hasn’t been updated since October 9.