Chapter 1: What is President Trump's plan to lower mortgage rates?
Chemical elements 50, 79, 29, and 47. The economics thereof. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Rizdahl. It is Thursday. Today, this one is the 15th of January. Good as always to have you along, everybody.
Our entry point into the economy today, this one and the global one, comes via the commodities markets, metals in particular, which, and I believe this is the technical Wall Street term, have been ripping this year. Gold, nickel, tin, and copper have all hit record highs the past couple of weeks. Silver, just as a for instance, is up 200% year over year.
That's happening in part because another particular asset isn't ripping. The U.S. dollar, and really all fiat currencies, but especially the U.S. dollar, seems to be getting debased at relatively high rates. Stephen Gleason is the CEO of Money Metals Exchange. The dollar is down 7% over the past year. It has been debased, in other words. That is actually a technical Wall Street term.
So one reduces one's exposure to those volatile U.S. dollars... How? Diversify into hard assets. Hard assets like real estate, maybe, but more easily gold, silver, also platinum. It's really just stored value and one that is not susceptible to debasement like a government-issued or Federal Reserve-issued currency is. Hey, there's that word again, debasement.
Juan Carlos Artigas is global head of research, also regional CEO for the Americas for the World Gold Council. It's not just the weakening dollar, though, also the broader political agita.
I think that is a combination of so many things happening that creates uncertainty amongst investors. And because they don't know exactly how much of that is going to translate into real impact into the global economy, they utilize assets like gold to hedge.
And it ain't just gold. Tin is at a record, too. Why, I hear you ask? Do not at me on this one, gang, but it's all about artificial intelligence. What is tin really useful for? Soldering. What needs lots of soldering? Computer chips. What needs lots of computer chips? You see where I'm going, right? Also, let us not forget copper, industrially critical as it is.
Should you want to get in on that action, though, best forget the commodity markets. We are seeing a lot of folks wanting to buy copper, physical copper. And actually, one of the best ways to do that, at least on the retail side, is the old pre-1983 pennies, which are, I believe, 95% copper. Put that one in there just for the numismatists among you.
Our visit to commodities ends with oil crude tumble today.
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Chapter 2: How do mortgage-backed securities work?
Both benchmarks down more than 4%. It's one of those good news for the rest of us is bad news for the markets things. There seems to be less Iran tension brewing. Don't know. Equities, you do know the drill. We'll have the details when we do the numbers. Cryptocurrency might, possibly, eventually, someday be actual useful money.
You know, a medium of exchange, a store of value, those traditional ways we think about the money that we use now. Eventually, but not yet. That does not mean, though, that there isn't a ton of backing and forthing about how to regulate the stuff before we get to our monetary future. And one slice of that fight, it's between banks and cryptocurrency companies, boils down to interest payments.
Banks, of course, do make those payments, interest on deposits, right? The question at hand is whether crypto firms can offer something similar for people who hold what are called stable coins. Marketplaces of Revenishore has the ins and outs of that one. You have money, you put it in a bank, you get interest. That's how that works. But what about crypto, specifically stablecoins?
This is a kind of crypto that doesn't go up or down in value much. It's really just a way to pay for things. The companies that issue stablecoins wanted to offer interest on them the same way that banks do on deposits. But Congress has already said no. We don't regulate stablecoin issuers nearly as extensively as banks, and we deliberately said they can't do all the things that banks can do.
Timothy Massad is a research fellow at Harvard's Kennedy School and former chair of the Commodity Futures Trading Commission.
The question now is, can other people? pay a reward or interest if you deposit your stable coins with them.
Can a trading platform like Coinbase, where people hold their crypto, offer you a reward or interest for keeping your stable coins with them? Banks say no, and they want a law that says that. The fear is that money would leave depository institutions. Rob Nichols is president of the American Bankers Association.
Why keep your money in a bank if you can get a higher reward stashing it as stable coins?
And then that money, which normally is lent into the economy for mortgage loans, auto loans, education, etc., would be parked in a payment mechanism, but it wouldn't create economic growth.
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Chapter 3: What impact does the purchase of mortgage bonds have on the economy?
But he is still wary of interest on stablecoins. When a bank makes loans that go bad, customers don't have to worry because the federal government insures their deposits. Stablecoins offer no such assurance. Crypto advocates counter that stablecoins are backed by treasuries and wouldn't pose any risk. But everyone is now making their case to Congress in hopes of a law that will favor them.
In New York, I'm Sabri Beneshour for Marketplace. About a week ago, one loses track to be honest, President Trump said he's going to order the government-owned mortgage giants Fannie Mae and Freddie Mac to buy $200 billion worth of mortgage-backed securities. The president says that'll push mortgage rates down.
And indeed, in the time since, average rates on 30-year fixed mortgages have ticked slightly lower. That's according to the Mortgage Bankers Association. Although, to be clear, they had been trending down before the president's announcement, too.
Nonetheless, Marketplace's Justin Ho looked into how mortgages become mortgage bonds and what will happen if Fannie and Freddie do wind up buying $200 billion worth of them. Mortgage bonds start with mortgages. When a borrower takes out a 30-year fixed-rate loan, the lender usually isn't in it for the long haul.
We may have it technically on our balance sheet for a day or two.
That's Chris Duncan, chief lending officer at LaSalle State Bank in Illinois. He says his bank usually doesn't want to hold on to long-term mortgages because they pay the bank a fixed interest rate for decades, and that would be a bad investment if interest rates were to rise.
If you make a terrible miscalculation and you have too many loans at fixed interest rates, as rates continue to rise on your deposits, you're paying out more money to your depositors than you are bringing into the bank in the form of loans and investment income.
So instead, LaSalle State Bank, like most banks, sells off almost all of its long-term mortgages to the big government-backed mortgage companies. Our preference most of the time is going to be to sell those loans to Fannie Mae. Fannie Mae and Freddie Mac buy up truckloads of mortgages and package them into bonds called mortgage-backed securities.
And that mortgage-backed security is sold into the international capital markets.
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Chapter 4: How is venture capital funding shifting towards AI?
Mike Frattantoni is chief economist of the Mortgage Bankers Association.
You are seeing more and more mortgage lenders offering rates below 6%. And that's really something we haven't seen very much at all, really, since 2022.
The MBA reports that applications to refinance mortgages jumped 40% in the last week.
When people hear about a rate being offered with something that starts with a 5 as opposed to a 6, that will really get someone's attention.
Frattantoni says we've seen a few refi boomlets like this over the past year, whenever rates have dipped. They tend not to last long because there are still plenty of pressures pushing long-term interest rates higher, government debt. And what if the president pressures the Federal Reserve into pushing rates too low so inflation picks up?
Investors are going to have to get compensated for that risk of higher inflation. They're likely to push longer-term rates up.
In other words, the president's order might not be enough to move the needle for borrowers. Chris Duncan says at LaSalle State Bank, mortgage rates haven't really changed. I think our 30-year is only down an eighth from the start of this year.
Our 15-year's fixed rate hasn't changed. And our 10-year is actually up an eighth since the president made that directive.
Duncan says he thinks those will have to fall a lot farther before mortgage and refi applications really pick up. I'm Justin Ho for Marketplace. Unromantic as this thought might be, marriage is an economic proposition. Shared bank accounts, joint property, tax filing, the list, as you know, goes on. Sometimes, though, it all falls apart, and all those economic ties need to be untied.
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Chapter 5: What challenges are banks facing with stablecoins?
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This is Marketplace. I'm Kai Risdom. Venture capital, should you have been wondering, is back. Last year, $340 or so billion of capital was ventured. That's at least $100 billion more than in any of the previous three years. The data comes courtesy of PitchBook and the National Venture Capital Association. So where have all those VCs been hiding and who's getting their money now?
Here's Marketplace's Daniel Ackerman. The last spike in venture capital funding was back in the low interest rate, easy money days of 2021. Josh Lerner of Harvard Business School says it was like... A drunken frenzy where venture capitalists gave a lot of money to a lot of people at very high valuations. But he says after any wild party... It's inevitable you're going to have a hangover.
in the last three years, have definitely been that of a hangover. Now though, the VC spending party is back on. And Seth Kaplan of the University of Chicago says you'll be shocked, just shocked, to learn where all that money is going. Not surprisingly, it's AI. Half of all VC dollars last year went to just 0.05% of all VC deals.
The money got hoovered up by the handful of firms building the most powerful AI models, like the ones developed by OpenAI, Anthropic, and XAI. Shiloh Tilleman-Dick is with the National Venture Capital Association.
These foundational models are a base that so many other companies are able to build value off of, and they're attracting so much capital as a result of that.
Tillman-Dick says venture capital has long been something of a winner-take-all industry, but the level of concentration right now? I think this is unusual. He says one reason, besides just the general hype around AI, is that it does require a good deal of capital.
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