Why Mortgage Rates May Rise Because Of New Treasury Secretary Hank Paulson

• Tweet

The first rule of U.S. Dollar policy?  Don't talk about U.S. Dollar policy.  At least, not until you're already on the job.

Former Goldman Sachs CEO Hank Paulson was sworn in today as the nation's 74th Treasury Secretary.  He noted:

"We must always remember that the strength of the U.S. economy is linked to the strength of the global economy."

Most people don't know the name Hank Paulson, nor did they know the name of John Snow, the man Paulson is replacing.  But, what John Snow did for the economy cannot be understated.

Snow played a part in keeping mortgage rates low over the last few years.

John Snow was an ardent supporter of a strong U.S. dollar and that was terrific for mortgage rates.  Strong demand for dollar-denominated securities such as mortgage bonds holds rates down.

If Paulson takes an opposite approach, investors will likely sell mortgage bonds instead and rates will rise.

Paulson did not address economic policy in his speech today, but consider his viewpoints on the dollar to be one more long-term risk to mortgage interest rates.

Meanwhile, in order to preclude any future conflicts of interest, Paulson is forced to divest himself of 3.23 million shares of Goldman Sachs common stock plus other Goldman Sachs securities.  Marketwatch estimates the total value at $496 million.

Source
Paulson Pledges a Strong and Open U.S. Economy, During Swearing-In
Wall Street Journal
July 1, 2006

http://online.wsj.com/article/SB115254409603102355.html?mod=The-Evening-Wrap

Paulson files to sell $500 mln in Goldman stock
Marketwatch.com, Steve Gelsi
July 10, 2006

http://www.marketwatch.com/News/Story/43xRFhd1RRlnqg1H1BkmTP4?siteid=google&dist=TNMostMailed