They say a picture is worth a 1,000 words. This will sum up the financial news!

What can I say about the unprecedented volatility of the stock market this week that’s not already been said? Bottom line is fear is driving things downward in the stock market and also for mortgage bonds. We saw 30 year fixed mortgage rates move around 0.5% higher from last Friday. The stock and bond market volatility has overshadowed some positive moves by the government.

Mid week the Fed reduced the federal funds rate by 0.5% in rate and the discount rate by 0.75% in rate to 1.5% and 1.75% respectively. The difference between this rate cut and all the past rate cuts is they did it with several European banks. When the Fed lowers the Federal Funds Rate it usually will have the opposite affect on 30 year fixed mortgage rates. The reason this can happen is because when they make money cheaper it will help stimulate our economy, and can be inflationary. By doing this in tandem with other countries, it reduces the risk of inflation because money around the world is becoming cheaper all at the same time. This is great to see that the United States is no longer fighting this battle alone. Despite the coordination with foreign banks the fear of holding mortgage bonds is so high the demand for them was very low. This caused mortgage bond pricing to drop at a similar rate that the stock market has dropped. The result is higher mortgage rates this week.

Some very positive news is further coordinated efforts between the United States and six other countries. It may sound like a crime fighting team in a sci-fi movie, but the “G7” is a group of seven countries who will unite to battle the credit crisis. The countries in the G7 are the United States, Japan, Germany, Britain, France, Italy and Canada. (Where is China?) The officials from the Group issued the five-point plan aimed at reversing the credit crisis that has unhinged Wall Street and markets around the globe. They pledged to take “decisive action and use all available tools.” Under the plan, the countries vowed to protect major banks and to prevent their failure. They also committed to working to get credit flowing more freely again, support the efforts of banks to raise money from both public and private sources, safeguard bank depositors and revive the battered mortgage financing market.

“The current situation calls for urgent and exceptional action,” the G7 finance ministers said in a joint statement.

Treasury Secretary Henry Paulson said the U.S. government will move ahead with a plan to buy stock in financial institutions. The Bush administration received authority to make direct purchases of stock in banks in the $700 billion financial rescue bill Congress passed last week.

The Bernanke, Paulson, and the President have been saying for the past 12 months that they will do “what ever it takes” to restore stability to the economy. Now it’s clear that not only the United States government, but all economic powers in the world are committed this effort. That gives me hope knowing that our country is not going at it alone. That’s as good a reason to be positive as any, right?

Laughter is truly the best medicine, if you have a couple minutes this video is definitely worth a look!

http://www.youtube.com/watch?v=KADr2KG5aso