I hesitated to 'like' this sobering look at our reality on the ground because it seems like an affirmation of the radical view that we're pretty much up shit creek, and have been for decades. Urk. Nonetheless, taking a hard look at the details is like drinking some foul-tasting medicine that ends up shrinking a tumor, giving you time to beat the cancer, if you have the will to live baked fully into your genes. So I read this whole damn article, pausing for breath now and again. I don't personally have a mortgage, as I was lucky enough to be able to buy a house outright, a matter largely of accidental timing, as well as buying a modest house sized only for my needs, not a bloated monstrosity you could erect a full size race track or ballroom inside, with separate bathrooms for each member of the family, including the pets. But I did have a HELOC when finessing the purchase of my current home while simultaneously putting my former home on the market. And Jesus H. Christ what a shock it was to look at the interest right up front like that. Egads and Gadzooks. And I have completed eight years of college (with not one finance class in all that time).Might I suggest that financial education worth the name be mandated for every student before graduation from high school? And also, that you compare how the mortgage fiasco looks in other countries, ones hopefully not largely beholden to the banking industry.
I would bet that 95% of Americans are unaware that if there is another banking crisis, the bank(s) will seize their deposits in what has been labeled, a bail-in. Following the 2008-2009 crisis changes were made to the Dodd-Frank banking law that allows banks to reclassify deposits as credit obligations. This turns account holders into unsecured creditors in a bankruptcy. As an unsecured creditor, a depositor would be well down the list of those receiving payouts in a bankruptcy settlement. Ahead of them would be such arcane things such as holders of derivatives. When crafting the new law, financial world insiders proposed that if a bail-in was contemplate, "those that needed to know" would be advised in advance. This means that ordinary folk would be left holding the bag as usual. FDIC would cover $250K per account as long as its money held out but then congress would have to appropriate more money. If you don't believe this, Google bail-in and read the bad news.
I get why people worry about that, but the U.S. framework isn’t set up the way a lot of “bail-in” posts make it sound.
Dodd-Frank didn’t reclassify deposits or make them fair game for seizure. Deposits have always been bank liabilities — that’s how fractional-reserve banking works — but they’re still protected by the FDIC up to $250,000 per depositor, per bank. When a bank fails, shareholders and bondholders get wiped first, then (if needed) uninsured deposits, and insured deposits are covered in full.
The “bail-in” authority in Dodd-Frank applies to unsecured creditors and investors, not to ordinary depositors. The FDIC and the Fed use the “Orderly Liquidation Authority” to unwind big institutions without taxpayer bailouts, not to raid checking accounts.
You’re right that Europe and Canada have written depositor bail-ins into their rules; the U.S. hasn’t. If another SVB-type failure happens, the government will almost certainly protect deposits again because the political and systemic cost of not doing so would be far worse.
So it’s good to be cautious, but the claim that banks can just seize deposits in a U.S. “bail-in” isn’t accurate in my opinion.
I don’t think there is a politician, save for maybe Sanders and Warren, that would understand the depth of what needs to be done to begin to correct this fiasco. We have truly doomed the financial well being of our children and grandchildren at this point. The cabinet clearly is taking the “kick the can” approach, floating this 50 year mortgage craziness. It’s extraction, pure and simple. Are their economist out there, if chosen to lead, who could truly convince anyone in power to take a different tact?
This is one of your very best pieces. Really well done and thank you. Could you explain more about how the hedging duration part works? Like if I’m a sovereign wealth fund or an insurance company holding a portfolio of long-dated MBS, how does holding long-dated Treasuries hedge my duration risk? It seems like each asset class offers similar exposures, with the difference being credit quality (?ha?) and refinancing risk.
That’s a great question — and it gets right into the plumbing of how mortgage and bond portfolios actually behave.
Here’s what’s going on: MBS (mortgage-backed securities) have what’s called negative convexity — meaning their duration moves against you. When rates fall, borrowers refinance, cash flows come in sooner, and the security’s effective duration shortens just when you want it to be long. When rates rise, prepayments slow down, cash flows extend, and your duration lengthens just when you’d prefer it to shorten. That embedded borrower option (the right to prepay) is what creates the asymmetry.
So if you’re an insurance company, a pension fund, or a sovereign wealth fund holding a portfolio of long-dated MBS, your duration exposure is constantly shifting with the rate environment. You can’t just “set it and forget it.” You have to keep your portfolio’s total duration — the weighted sensitivity to interest-rate changes — within a target range that matches your liabilities.
To do that, you hedge with Treasuries or interest rate swaps. Those instruments have clean, predictable duration and no embedded optionality. When your MBS duration extends (because rates rise), you short long Treasuries or receive fixed on swaps — adding a position that benefits when rates rise, offsetting the longer duration of your mortgage book. When your MBS duration contracts (because rates fall), you buy back the Treasury short or pay fixed on swaps, removing duration you no longer have. The hedge isn’t about “credit quality” — it’s about stabilizing the duration of the entire portfolio as rates move.
In other words, long Treasuries don’t hedge MBS because they have opposite exposures — they hedge because they’re the cleanest, most liquid, and most predictable tools for counteracting MBS’s duration volatility.
Now, extend that logic to 50-year mortgages and you see the structural problem: a 50-year instrument massively extends both duration and convexity. Its sensitivity to rate changes is huge, and its duration swing as rates move is much harder to neutralize. There’s almost no liquid market for 40- or 50-year Treasuries, and even the long end of the swap curve (past 30 years) is thin. The hedging infrastructure itself runs out of runway.
That’s one of the reasons the system can’t easily absorb 50-year paper at scale — not because investors wouldn’t, in theory, like the yield, but because the tools needed to hedge its rate risk cleanly just don’t exist at a practical scale.
In an interview, trump talked about 40 year mortgages being the norm, and suggested that 50 years wasn't a big change. Nobody has a 40 year residential mortgage. He is just ill informed and shooting from the hip. Like when he "rediscovered" that old word, "groceries"...
A question: why would non-usa investors want a financial product that lasts 50 years? This isn't the post-World War II era, where Europe was in ruins and only the United States growing ; it's 2025, where central banks around the world are moving away from the dollar.
Ok. You're coming at this as if the notes are going to be held to term. That's pretty unusual.
The reason why any investor would want a long-term fixed rate note is that the promised return on the note is likely to be better than short or medium-term conditions.
Again, if you go back to what I was writing... the real purpose of the Treasury bonds is that it functions essentially as money with zero risk. You don't have to worry about depositor insurance. You don't have to worry about hedges against inflation (it's already hedged, hence the yield). And the note is essentially accepted AS CASH.
So if you need to solve asset balancing problems in your portfolio where you're trying to optimize against a long-term horizon, having and trading those securities could make sense.
Now, I will say that 50 years? Yeah, nobody has done that. In economics, an economist would generally tell you (most likely) that the "short term" is three years or less. The "medium term" is 3 to 10, sometimes 15 years, and the "long term" is anything over 20 years. No economist goes, "the long term is 50 years." I mean, there's the famous remark from Keynes that goes, "in the long term, we're all dead." A 50-year note would definitely meet that euphemism in real terms.
There is still a strategic value to holding US debt. The current foray of central banks around the world trying to hedge with Gold demonstrates it. There's really just no game in town "big enough" to allow parking the billions and trillions that need to be parked with zero risk.
As a non-American I found this to be an interesting and enlightening read.
El Cheeto surrendering finances to a 50-year IOU (easy for him to do as at this point he's unlikely to see another five) is at least entirely consistent though as he's basically already surrendering the century to China by dumping the technologies of the future for the sake of what has been pithily described as "industrial taxidermy"...
The time for correction was the 2008-2009 crisis, but Obama and his administration decided that the banks were too big to fail. The banks got a warning with a slap on the wrist (a stern talkin' to!) and now they are back to the same old schtick....only worse!
The 30 year market happened in a time of population growth. The only recent population growth in the US is due to immigration. Of course the moron administration is discouraging immigration. So what does population decline do to the 50 year market? Housing becomes more available, but it can also be destroyed.
You know the 30-year mortgage? It’s great—if by great you mean the homeowner pays forever, the Treasury sweats bullets, and bondholders nervously sip their coffee hoping the house of cards holds.
Hard-working American corporations are losing tons of money each year with the discharging of debt due to the inconsiderate death by the debtor. We really need to find a way to capture this revenue by somehow making debt generational....I know!! 50 year mortgage!!!!
Then we can secure dischargble debt and profits by offering special "instant line of credit" cards against those assets!!!
All we need to do is control and suppress wages untill anything other than a 50 year mortgage is not economically viable and just reinforce the idea that the middle class actually had a choice!!!
Just looking at this from a homeowner perspective: your math on the principal vs. interest a homeowner pays is correct, but it ignores the fact that the homeowner is paying less per month and can put the incremental amount of money into the stock market. The owner ends up ahead over time, assuming typical stock market returns on the incremental funds.
The 50 year mortgage thus enables the owner to either a) afford a house they couldn't before, b) drive more capital appreciation while owning a home, c) turn it into an effective 30 year mortgage by accelerating principal payments.
Aside from all other considerations, I can't imagine a FIFTY-year mortgage appealing to ANY prospective homeowner. My view of a 30-year mortgage was, it's a Long-Term Relationship with a Bank. Eeeww!! No thank you.
But *fifty*?! Even the most mentally challenged among us oughta recognize indentured servitude. You can sniff it even reading the words on the page.
I hesitated to 'like' this sobering look at our reality on the ground because it seems like an affirmation of the radical view that we're pretty much up shit creek, and have been for decades. Urk. Nonetheless, taking a hard look at the details is like drinking some foul-tasting medicine that ends up shrinking a tumor, giving you time to beat the cancer, if you have the will to live baked fully into your genes. So I read this whole damn article, pausing for breath now and again. I don't personally have a mortgage, as I was lucky enough to be able to buy a house outright, a matter largely of accidental timing, as well as buying a modest house sized only for my needs, not a bloated monstrosity you could erect a full size race track or ballroom inside, with separate bathrooms for each member of the family, including the pets. But I did have a HELOC when finessing the purchase of my current home while simultaneously putting my former home on the market. And Jesus H. Christ what a shock it was to look at the interest right up front like that. Egads and Gadzooks. And I have completed eight years of college (with not one finance class in all that time).Might I suggest that financial education worth the name be mandated for every student before graduation from high school? And also, that you compare how the mortgage fiasco looks in other countries, ones hopefully not largely beholden to the banking industry.
I would bet that 95% of Americans are unaware that if there is another banking crisis, the bank(s) will seize their deposits in what has been labeled, a bail-in. Following the 2008-2009 crisis changes were made to the Dodd-Frank banking law that allows banks to reclassify deposits as credit obligations. This turns account holders into unsecured creditors in a bankruptcy. As an unsecured creditor, a depositor would be well down the list of those receiving payouts in a bankruptcy settlement. Ahead of them would be such arcane things such as holders of derivatives. When crafting the new law, financial world insiders proposed that if a bail-in was contemplate, "those that needed to know" would be advised in advance. This means that ordinary folk would be left holding the bag as usual. FDIC would cover $250K per account as long as its money held out but then congress would have to appropriate more money. If you don't believe this, Google bail-in and read the bad news.
I get why people worry about that, but the U.S. framework isn’t set up the way a lot of “bail-in” posts make it sound.
Dodd-Frank didn’t reclassify deposits or make them fair game for seizure. Deposits have always been bank liabilities — that’s how fractional-reserve banking works — but they’re still protected by the FDIC up to $250,000 per depositor, per bank. When a bank fails, shareholders and bondholders get wiped first, then (if needed) uninsured deposits, and insured deposits are covered in full.
The “bail-in” authority in Dodd-Frank applies to unsecured creditors and investors, not to ordinary depositors. The FDIC and the Fed use the “Orderly Liquidation Authority” to unwind big institutions without taxpayer bailouts, not to raid checking accounts.
You’re right that Europe and Canada have written depositor bail-ins into their rules; the U.S. hasn’t. If another SVB-type failure happens, the government will almost certainly protect deposits again because the political and systemic cost of not doing so would be far worse.
So it’s good to be cautious, but the claim that banks can just seize deposits in a U.S. “bail-in” isn’t accurate in my opinion.
https://ellenbrown.com/2023/02/25/what-will-happen-when-banks-go-bust-bank-runs-bail-ins-and-systemic-risk/
I don’t think there is a politician, save for maybe Sanders and Warren, that would understand the depth of what needs to be done to begin to correct this fiasco. We have truly doomed the financial well being of our children and grandchildren at this point. The cabinet clearly is taking the “kick the can” approach, floating this 50 year mortgage craziness. It’s extraction, pure and simple. Are their economist out there, if chosen to lead, who could truly convince anyone in power to take a different tact?
This is one of your very best pieces. Really well done and thank you. Could you explain more about how the hedging duration part works? Like if I’m a sovereign wealth fund or an insurance company holding a portfolio of long-dated MBS, how does holding long-dated Treasuries hedge my duration risk? It seems like each asset class offers similar exposures, with the difference being credit quality (?ha?) and refinancing risk.
That’s a great question — and it gets right into the plumbing of how mortgage and bond portfolios actually behave.
Here’s what’s going on: MBS (mortgage-backed securities) have what’s called negative convexity — meaning their duration moves against you. When rates fall, borrowers refinance, cash flows come in sooner, and the security’s effective duration shortens just when you want it to be long. When rates rise, prepayments slow down, cash flows extend, and your duration lengthens just when you’d prefer it to shorten. That embedded borrower option (the right to prepay) is what creates the asymmetry.
So if you’re an insurance company, a pension fund, or a sovereign wealth fund holding a portfolio of long-dated MBS, your duration exposure is constantly shifting with the rate environment. You can’t just “set it and forget it.” You have to keep your portfolio’s total duration — the weighted sensitivity to interest-rate changes — within a target range that matches your liabilities.
To do that, you hedge with Treasuries or interest rate swaps. Those instruments have clean, predictable duration and no embedded optionality. When your MBS duration extends (because rates rise), you short long Treasuries or receive fixed on swaps — adding a position that benefits when rates rise, offsetting the longer duration of your mortgage book. When your MBS duration contracts (because rates fall), you buy back the Treasury short or pay fixed on swaps, removing duration you no longer have. The hedge isn’t about “credit quality” — it’s about stabilizing the duration of the entire portfolio as rates move.
In other words, long Treasuries don’t hedge MBS because they have opposite exposures — they hedge because they’re the cleanest, most liquid, and most predictable tools for counteracting MBS’s duration volatility.
Now, extend that logic to 50-year mortgages and you see the structural problem: a 50-year instrument massively extends both duration and convexity. Its sensitivity to rate changes is huge, and its duration swing as rates move is much harder to neutralize. There’s almost no liquid market for 40- or 50-year Treasuries, and even the long end of the swap curve (past 30 years) is thin. The hedging infrastructure itself runs out of runway.
That’s one of the reasons the system can’t easily absorb 50-year paper at scale — not because investors wouldn’t, in theory, like the yield, but because the tools needed to hedge its rate risk cleanly just don’t exist at a practical scale.
That is super helpful and I am tracking with you. Thanks for explaining this! Among your many other talents you should be a bond trader…
In an interview, trump talked about 40 year mortgages being the norm, and suggested that 50 years wasn't a big change. Nobody has a 40 year residential mortgage. He is just ill informed and shooting from the hip. Like when he "rediscovered" that old word, "groceries"...
https://youtube.com/shorts/KBzTaI1AHyM?si=rKdZHwb3kUHEWksi
Yeah I saw it... 20-30-40-50 whatever... it's just a few extra years...
All I could think of ... was this...
https://www.youtube.com/watch?v=II4-HnWRQK0
Let’s call a fifty year mortgage by it’s real name: Rent.
Only now you’re stuck with maintenance.
LOL! Not too far off from the truth... maintenance and a tax deduction.
A question: why would non-usa investors want a financial product that lasts 50 years? This isn't the post-World War II era, where Europe was in ruins and only the United States growing ; it's 2025, where central banks around the world are moving away from the dollar.
Ok. You're coming at this as if the notes are going to be held to term. That's pretty unusual.
The reason why any investor would want a long-term fixed rate note is that the promised return on the note is likely to be better than short or medium-term conditions.
Again, if you go back to what I was writing... the real purpose of the Treasury bonds is that it functions essentially as money with zero risk. You don't have to worry about depositor insurance. You don't have to worry about hedges against inflation (it's already hedged, hence the yield). And the note is essentially accepted AS CASH.
So if you need to solve asset balancing problems in your portfolio where you're trying to optimize against a long-term horizon, having and trading those securities could make sense.
Now, I will say that 50 years? Yeah, nobody has done that. In economics, an economist would generally tell you (most likely) that the "short term" is three years or less. The "medium term" is 3 to 10, sometimes 15 years, and the "long term" is anything over 20 years. No economist goes, "the long term is 50 years." I mean, there's the famous remark from Keynes that goes, "in the long term, we're all dead." A 50-year note would definitely meet that euphemism in real terms.
There is still a strategic value to holding US debt. The current foray of central banks around the world trying to hedge with Gold demonstrates it. There's really just no game in town "big enough" to allow parking the billions and trillions that need to be parked with zero risk.
That's the reason.
Thanks
As a non-American I found this to be an interesting and enlightening read.
El Cheeto surrendering finances to a 50-year IOU (easy for him to do as at this point he's unlikely to see another five) is at least entirely consistent though as he's basically already surrendering the century to China by dumping the technologies of the future for the sake of what has been pithily described as "industrial taxidermy"...
The time for correction was the 2008-2009 crisis, but Obama and his administration decided that the banks were too big to fail. The banks got a warning with a slap on the wrist (a stern talkin' to!) and now they are back to the same old schtick....only worse!
You must think you're slick with your use of AI. A shame because there's actual good information here. You're capable of better writing.
The 30 year market happened in a time of population growth. The only recent population growth in the US is due to immigration. Of course the moron administration is discouraging immigration. So what does population decline do to the 50 year market? Housing becomes more available, but it can also be destroyed.
You know the 30-year mortgage? It’s great—if by great you mean the homeowner pays forever, the Treasury sweats bullets, and bondholders nervously sip their coffee hoping the house of cards holds.
But a 50 year mortgage - seriously 😳
Thanks for the article.
I simply had no idea. Thank you for educating me!
This is brilliant. as an ex bond market dude, it’s about the best I’ve ever read (God knows how many hedges in MBS and IG corporates I set up in
my misspent life.)
Hard-working American corporations are losing tons of money each year with the discharging of debt due to the inconsiderate death by the debtor. We really need to find a way to capture this revenue by somehow making debt generational....I know!! 50 year mortgage!!!!
Then we can secure dischargble debt and profits by offering special "instant line of credit" cards against those assets!!!
All we need to do is control and suppress wages untill anything other than a 50 year mortgage is not economically viable and just reinforce the idea that the middle class actually had a choice!!!
Just looking at this from a homeowner perspective: your math on the principal vs. interest a homeowner pays is correct, but it ignores the fact that the homeowner is paying less per month and can put the incremental amount of money into the stock market. The owner ends up ahead over time, assuming typical stock market returns on the incremental funds.
The 50 year mortgage thus enables the owner to either a) afford a house they couldn't before, b) drive more capital appreciation while owning a home, c) turn it into an effective 30 year mortgage by accelerating principal payments.
Aside from all other considerations, I can't imagine a FIFTY-year mortgage appealing to ANY prospective homeowner. My view of a 30-year mortgage was, it's a Long-Term Relationship with a Bank. Eeeww!! No thank you.
But *fifty*?! Even the most mentally challenged among us oughta recognize indentured servitude. You can sniff it even reading the words on the page.