To the victor go the spoils. To those bankers that have managed to survive the credit collapse go the profits. Loan volume and profits rolled through the mortgage industry last week as mortgage rates dropped and refinance activity resumed with a vengeance. Industry capacity strained, and the spread between mortgage rates to the consumer and mortgage securities yields pushed wider towards 1.00%.

Much of last week’s refinance boomlet was due to a narrowing of the spread between mortgage and Treasury yields. Caught between a bouncing stock market and horrible employment news, Treasury yields did not fall. In fact, 30-year Treasury yields ground ever higher.

Stocks are 12% above their lows – by way of explanation, Barron’s reports that not bad is the new good. Or maybe it was Vikram Pandit’s news that Citi is turning a profit. In any case, one headline read: “At least we’re one month closer to the bottom.”

If Treasury yields don’t fall when Warren Buffett talks about how bad things are, what’s the Fed to do? Look for the Fed to address purchases of Treasury debt at this Wednesday’s FOMC meeting. There aren’t many other arrows left in their quiver now that they’ve taken funds rates to zero. To date, the Fed has only talked about quantitative easing (“QE” in Wall Street parlance), but has not yet made any Treasury purchases. To create liquidity, governments around the world have begun purchasing their own debt.

China, of course, has been indirectly helping the U.S. with its QE for some time now, and China’s Premier Wen Jiabao is starting to get worried. China holds a mere $1 trillion of U.S. debt. Its main worry is probably not the credit-worthiness of the U.S., but rather the strength of the yuan versus the dollar. In a weak global economy, to the cheapest currency goes the trade. China wants neither a strong yuan nor a weak dollar, and the more money the U.S. prints, the weaker the dollar is likely to get.

Last week CMC hosted a mortgage conference in beautiful Atlantic Beach, Florida. The tone was upbeat, and the content was constructive and valuable. We look forward to being a part of a better, stronger mortgage industry going forward. Thanks to all who attended, and we are already making plans for next year.

Former presidential candidate John Edwards spoke to students at Brown University last week about poverty and morals – I think the topic was “From Hair to Paternity.” Yeah, and who better to lecture young people about poverty and morals than a rich personal injury attorney who knocked up his mistress? – Jay Leno

Thanks for your business and have a good week. — Tom Millon