Cheap Mortgages to the Rescue?

In his final weeks on the job, Treasury Secretary Henry Paulson is going back to the root of the economy's problems: the housing market. According to the Wall Street Journal, Paulson is mulling a plan to revitalize slumping home sales by squeezing lending rates to affordable levels for new homebuyers. How affordable? "The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full point lower than prevailing rates for standard 30-year fixed-rate mortgages," the newspaper writes.

The extraordinary move, essentially giving the Treasury the go-ahead to intervene directly in the U.S. mortgage market, still has kinks to be worked out—like how it will be funded. "One possibility is for the Treasury to raise money by issuing bonds to the public at 3 percent interest. This could allow the government to turn a profit because it would be buying securities that pay 4.5 percent," the Washington Post writes. It may not yet be finalized, but already the WSJ's David Reilly in his "Word on the Street" column thinks it's a good idea. "Housing led markets into this mess. So even though the crisis has now broadened, housing is still likely to lead them out," he concludes.

According to the WSJ, the days of finding a bargain power sander or 50-inch plasma TV online are fast becoming history. That's because of a new breed of price enforcers that patrol the Internet looking for distributors selling goods below the manufacturer's advertised price. According to the WSJ, online discounters, such as eBay, Buy.com, and even Costco, are battling back. Today they will "call for new laws blocking manufacturers from setting minimum prices." They have a tough battle ahead. Last year, the Supreme Court ruled that minimum-pricing agreements are legal and not a violation of antitrust law, opening up a cottage industry of price enforcers working on behalf of major manufacturers such as Sony, Black & Decker, and JVC Kenwood.

The new lobbying effort by online retailers comes as new data show e-commerce sales actually rose year-on-year during the first holiday weekend, the New York Times reports. "The Monday after Thanksgiving was the second-heaviest online spending day on record, comScore said, behind only Dec. 10, 2007. Online sales climbed to $846 million, up 15 percent from the previous year," the newspaper writes. But it would be premature to celebrate. Online sales traditionally tail off sooner than traditional retail sales, and online sales account for just 7 percent of the entire industry, not nearly enough to save retailers' Christmas.

The situation facing the Big Three automakers is now so dire that even their own unions are ready to make concessions. Yesterday, in what the NYT calls a surprising move, the United Automobile Workers union said it "would make major concessions in its contracts with the three Detroit auto companies to help them lobby Congress for $34 billion in federal aid." Specifically, the UAW "agreed to suspend the program where laid-off workers can get up to 95 percent of their wages and benefits, a concept that came to symbolize the stereotype of overpaid, underworked factory workers," writes the Detroit News. In surrendering the  so-called JOBS bank, the UAW has given up "the union's version of corporate jets," writes BusinessWeek.

The jobs keep on disappearing with new data showing that the "U.S. economy is bleeding jobs faster than it has since the early 1980s, and perhaps since the mid-'70s," writes Business Week. Up to 400,000 jobs may have been lost last month alone. Few parts of the nation are being spared the economic downturn, reports the WSJ. "Nearly every area of the U.S. reported tighter lending, declining sales and manufacturing, and softening labor and real-estate markets, according to the Fed's Beige Book survey of regional economic activity," it writes.

For consumers, life in Iran can be pretty good when you consider these everyday low prices tallied by the Washington Post this morning: 36 cents for a gallon of gasoline, 20 cents for a quart of milk, and 50 cents for a big box of laundry detergent. Alas, all good things must come to pass. And so it goes in Iran, where President Mahmoud Ahmadinejad is calling for an end to the government's massively generous subsidies and price controls in the next few months as part of what he calls his "economic evolution" plan. There's just one problem: It's deeply unpopular with the middle and working classes and even some political leaders.