Q: Who Profits From the Fed’s Generosity? A: Not Real Estate

Some sector of the economy is profiting from the Fed’s response to the real estate crisis.

But it isn’t real estate.

The Dow today jumped 416.66 points — its largest one day gain in over five years — as the Fed announced that it would offer up to $200 billion in ultra-safe Treasury securities to the nation’s banks and major brokerage firms in exchange for a variety of collateral options — including the mortgage-backed securities that have caused the recent financial crisis.

The Standard & Poor’s 500-stock index was up 3.7 percent, and the Nasdaq composite index gained 4 percent.

This is great news for the banks and the stock market, but what will it mean for real estate?

Unfortunately, if the current trend holds, not much.

As CNNMoney points out, “despite the eagerness to accept the government’s “liquidity” injections, banks aren’t significantly increasing their lending… In fact, some banks seem to be pulling back even further – for example, Citigroup last week said that it will scale back its mortgage business.”

It is becoming clear that the real estate crisis is really a credit liquidity crisis.

Any government program or monetary policy that fails to result in making significantly more credit available to smaller investors and homeowners won’t stabilize the fall in real estate values.

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