Why the Chrysler and GM bailouts will raise mortgage rates.
Are you enjoying the historically low interest rates? Many people are and it is a saving grace in a weak housing market. All this may change in part because how the Obama administration is treating General Motors and Chrysler.
Mortgage rates will rise because of car companies? How could that be you ask? Take a look at this op-ed in the New York Times. And remember, the New York Times has not been a critic of the Obama administration (they have been more like cheerleaders if you ask me).
Even if the courts were to reject the plans for G.M. and Chrysler, the administration’s actions in trying to force the deals may damage the credit markets for years to come. The treatment of the bondholders is a warning to investors that the federal government won’t hesitate to push them aside in a crisis.
Perhaps it’s no coincidence that in the wake of the Chrysler deal we have seen a decline in prices for long-term Treasury bonds and a sinking dollar. The Chinese, for example, could view things this way: If the United States is willing to skirt the law to help some of the president’s closest political supporters gain large pieces of two of the world’s biggest companies, will Washington necessarily stand behind any Treasury securities we own when it becomes politically inexpedient? the whole editorial is here if you are interested NYTimes.com.
When treasury bonds go up and foreign countries decide they do not want to lend us money at low interest rates, what happens? We have to offer higher interest rates, IE the cost of money goes up.
And when the cost of money goes up, it tends to go up for every investment, even mortgages. So the governments political intervention in the automotive industry has lowered trust from our lenders.