The Fed has been laser-locked on keeping up the momentum in the US housing market. In its asset-purchase program, known as QE3, it’s been buying the mortgage bonds where almost all US home loans eventually end up. Doing so pushes rates lower in the secondary markets where traders buy and sell those bonds. And, in theory, those lower rates are passed along to consumers by the banks.

The problem is that the banks aren’t passing on all the savings they could. How do we know? One measure is the primary-secondary spread. This is the difference between the average mortgage rate consumers are offered and the benchmark rate on mortgage bonds in the financial markets. It serves as one gauge of the profit a bank can make on a mortgage. And recently, as mortgage rates have hit historic lows, the spread has blown out to historic highs. Here’s a look from a Fed paper published recently.

Economists from the Fed churned out a paper recently calculating whether the bigger spread means the banks are making bigger profits (Answer: yes) and trying to figure out why. This matters because the main point of the Fed’s bond-buying is to make mortgages cheaper for home-buyers, not to make them more profitable for banks. The short version is that there are a bunch of factors at play. Over at WSJ.com’s Developments blog they give a nice summary.

But we found one of the lines of reasoning in the Fed paper somewhat strange. It was over the question of concentration in the mortgage market. There’s a theory that because a few big banks control most of the mortgage world, they aren’t competing against one another as fiercely, so they can get away with offering rates that aren’t quite as low. The Fed paper downplays this notion (emphasis ours):

It is well-known that the mortgage market in the United States is dominated by a relatively small number of large banks that originate the majority of loans. However, as shown in Figure 10, a simple measure of market concentration given by the share of loans made by the largest five or ten originators has actually decreased over the period 2011-12, as a number of the large players have decreased their market share (while the largest originator has further increased its origination share). Thus, market concentration alone is unlikely to provide an explanation of high profits in the mortgage business.

Really? You’ll look at market concentration over the last year alone? That seems a strange way to measure things. Don’t take our word for it. Listen to Ed DeMarco, the acting head of the Federal Housing Finance Agency, an important US housing regulator (again, emphasis ours):

I would like to see the mortgage market of the future become more competitive than it is today. We have seen a great deal of concentration in mortgage origination and in mortgage servicing in recent years. This has come, in part, at the expense of small and local banks and thrifts, institutions with both local market knowledge and direct and multiple relationships with borrowers.

During the first half of 2012, three banks—Wells Fargo, JP Morgan and US Bancorp—originated half the mortgages in the US. Three. Wells Fargo alone made more than one third of the mortgages. By itself. According to Bloomberg, back in the 1990s a lender with 7% of the mortgage market would have been considered a big player.

Even the head of the New York Fed, Bill Dudley, has acknowledged that the mortgage market is increasingly concentrated. In a speech back in October, when Dudley explained why the Fed wasn’t getting as much bang for its buck, the power of the banks was the first thing he mentioned (emphasis ours):

The incomplete pass-through from agency MBS yields into primary mortgage rates is due to several factors—including a concentration of mortgage origination volumes at a few key financial institutions and mortgage rep and warranty requirements that discourage lending for home purchases and make financial institutions reluctant to refinance mortgages that have been originated elsewhere.

In a speech on the topic at the New York Fed this week, Dudley mentioned similar factors, though his focus on the market power of the banks seemed a tad more muted. Of the Fed’s paper on the rise of bank profits he says:

The study examines a number of potential explanations.  These include capacity constraints, market concentration, pricing power over Home Affordable Refinance Program (HARP) refinance loans and pricing power on other loans. It finds that capacity constraints play a role and that there is evidence to suggest that originators enjoy pricing power and elevated profits on HARP and other refinancings.

Why this dancing around what seems to be an obvious problem? At the very least, it seems high time that the folks at the Fed devote their considerable powers and expertise to a study focusing exclusively on the concentration of lending among banks in the US mortgage market, and whether that is holding back the US recovery as a whole.

There’s an old saw about the difference between elections and sales: Businessmen have it easier than politicians, since 49% of the market makes a firm well-off but a politician facing the same result is a failure. The relative ruthlessness of each sector, it goes, is reflected in politics’ all-or-nothing mudslinging versus the more genteel world of corporate marketing.

The tech industry might be shaking up this conventional wisdom thanks to its firms’ all-or-nothing strategies; in this new world, 15% of the market isn’t enough for some players anymore. We’re talking, of course, about “Scroogled,” Microsoft’s new holiday-themed negative ad campaign against Google, which includes TV commercials and billboards across the US. The problem it’s trying to solve? Google has 75.5% of US search market share and Bing just 11.6%.

Google Shop, the company’s shopping website, now highlights results from companies that pay to be listed, a move which Google has disclosed in filings and, less prominently, on the website itself. It also excludes competitors like Amazon, which Microsoft contends robs consumers of the best deals. Microsoft’s campaign highlights Google’s erstwhile motto “Don’t be evil,” suggesting that consumers who feel screwed by the search pioneers—we’ll skip the clumsy portmanteau, thanks—should try Bing, Microsoft’s search offering.

The campaign is reportedly the work of political consultant Mark Penn, known for prominent roles in several Democratic presidential campaigns, who was hired by Microsoft earlier in the year. Given the bracing directness of the campaign, tongues got to wagging—”Did Mark Penn swiftboat Google?” was the question at Businessweek, referring to the infamous ad campaign that mischaracterized decorated veteran John Kerry’s war record during his presidential run.

“What makes this most interesting is that it’s not just ‘our product is better than their product,’” a veteran Democratic political consultant told Quartz. “It’s, ‘those guys are doing this in a way that screws users.’”

It wasn’t easy to find political operatives eager to comment on the record for this story. Many firms are interested in working with either company–or already are, as is the case of the Democratic heavyweights at the Glover Park Group, which does work for Microsoft, and Blue State Digital, founded by the Obama campaign’s digital director, which works for Google. “If political consultants aren’t doing work with them, they wanna be; we’re all greedy,” the consultant says.

There’s also the reality that every advocacy campaign today includes online media, and Google’s omnipresent advertising network is far and away the largest venue for reaching the internet audience. “It’s impossible to not deal with Google,” the consultant says, but adds that he just recently began including Bing in his media buys, as its growing market share made the move necessary.

In the political world, voters tend to decry negative advertising, even as campaigns rely on them.

“Is going negative dangerous for Microsoft or any other company? Sure,” a Republican campaign strategist in Washington said. “But it can be dangerous for campaigns. That doesn’t mean it doesn’t work. If you have a real, true contrast to make, then make it. The real danger is being wrong, not being negative.”

And that could be the fly in Microsoft’s ointment. There is a clear case that Bing is an equal opportunity offender when it comes to mixing advertisers into its search engine results, guilty of some of the opacity that it says Google uses to take advantage of consumers.

“The problem is that Bing also uses a combination of unpaid and paid ads by partnering with comparison engines like shopping.com,” Aminatou Sow, a digital strategist and consultant, says. ”Tech savvy folks will also be quick to point out that the website looks like a joke…this is another unsuccessful attempt of Microsoft trying and failing to mimic Google, [but] the truth is some consumers will still connect with the core message.”

Google’s question is how to respond; none of the consultants we spoke with saw much point in it. Neither did the company: After the campaign debuted, it merely issued a statement praising its shopping site.

“Google’s the candidate who’s 30 points ahead in the polls, if you look at this as a race,” the political consultant says. “When you’re that far ahead, you’ve really got a look up and say, is this something we need to respond to?”

But this is far from the last time we’ll see the tech companies adopt the language of electioneering. “Whether it’s opposition research, messaging or coalition-building, political campaigns have road-tested this stuff,” the Republican strategist says.

“You see it all the time—you see those Samsung commercials, which are clearly aimed at the iPhone,” the Democratic consultant says. ”It’s always entertaining watching the big guys go at it.”

Western bankers and consultants once viewed South East Asia mostly as a cheap holiday destination. Now they are widely promoting Indonesia, Thailand, Malaysia, the Philippines and Vietnam as hot investments. McKinsey issued a massive report back in September touting the attractiveness of Indonesia. It also likes Vietnam. A senior partner at a big four accounting firm based in Hong Kong told Quartz in recent days: “I am spending an awful lot of time in Malaysia looking for deals our clients might want to do there.” Goldman Sachs has been urging its clients to buy more Indonesian shares. Goldman is also expanding its Malaysian business, as is Bank of America. And Morgan Stanley says it likes Thai equities.

Companies and fund managers are listening to their advisors. KKR, the giant US private equity fund, has said it sees big opportunities for 2013 in Malaysia, Thailand, Indonesia, the Philippines and Vietnam. But it is not just the bules (Indonesian for foreigner, pronounced boo-lay) or farangs (Thai for foreigner) who want to spend money here. South East Asian tycoons are also doing deals that suggest assets in this region are undervalued. The showdown between Indonesia’s wealthy Riady family and Thai tycoon Charoen Sirivadhanabhakdi over Fraser & Neave, a Singaporean conglomerate with assets around South East Asia, could be the start of an M&A boom here.

But it is uncertain how long these palm-fringed countries will stay in vogue. South East Asian policy makers are likely to fail to capitalize on the current investment boom by moving their economies up the value chain. Most have a long history of focusing on short term GDP growth ahead of investing sustainably in people and technology.

The big story is low-cost labor. As this report by accountants PwC outlines (pdf, pages 7-8) South East Asian countries have cheap, and fairly well educated, workforces. Foreign direct investment into the region rose 24% in 2011, PwC said. Part of this was because manufacturers are leaving China  or these somewhat cheaper countries. More job opportunities are creating higher wages.

And long-term forecast growth rates for South East Asian countries look healthy. 

But these projections could be rosy. Growth stories based on cheap labor are not guaranteed to last. Economist Paul Krugman, in a 1994 paper (pdf), argued countries that create economic growth with “perspiration, not inspiration” cannot sustain high growth rates. “Mere increases in inputs, without an increase in the efficiency with which those inputs are used–investing in more machinery and infrastructure–must run into diminishing returns; input-driven growth is inevitably limited,” he wrote. Meanwhile in the US, Krugman added,  ”technological progress has accounted for 80% of the long-term rise,” in  per capita income.

To grow sustainably, countries need to raise labor productivity and invest in technology. Here, South East Asian countries are challenged. Labor productivity is woefully low across the region. Visitors to shops and restaurants in Jakarta, Manila, Hanoi, Bangkok or Kuala Lumpur will notice that, in shops and restaurants, bored and tired looking staff are often standing around doing nothing. At the same time, customers are standing in long queues not being served, or simply walking out in frustration. Employers do not seem to know how to organize their labor force to make them most productive and governments do not invest heavily in helping them learn. As this report by the United Nations states (pdf p.40), adjusted for differences in prices across countries, the average output per worker in South East Asia is around 15% of that in developed countries. That is even though South East Asians often work extremely long hours. The UN also does not see productivity rising very fast between now and 2016.

A lack of emphasis on upgrading technology is also a problem. From Indonesia’s coffee farms to Vietnam’s cement factories, inefficient and aging technology is a major issue. As the OECD said in this report (pdf, p.32) last year, “the use of labor-intensive methods or previous generation of process technology can provide an explanation for the current low levels of labour productivity in many Southeast Asian countries.”

South East Asian policy makers tend to focus too much on overall GDP growth at the expense of longer term improvements in innovation and productivity. In Malaysia, the challenge of speeding up slow labor productivity growth is always a focus of debate. Thailand has similar issues. In this column, veteran Asia commentator Philip Bowring highlights how Thailand’s government favors populist, short term income and boosting policies, such as subsidies for farmers, over more sustainable endeavors. He writes: ”Policy makers need to encourage rural incomes to rise naturally through productivity gains. Efforts should be made to raise farm productivity through mechanization, land consolidation and new technology.” Meanwhile the World Bank said in this 2010 report (pdf p.9) that Indonesia’s reluctance to allow skilled immigrants into the country was limiting “this potentially important source of informal skills transfers and acquisition.”

So while these countries are experiencing an investment boom, it might end soon. Foreign manufacturers have switched away from China and toward nations such as Indonesia because of lower wages. But across South East Asia, workers are already demanding to be paid more. The Indonesian government is mulling a minimum wage boost of up to 50%. Thailand raised wages across the country by up to 40% earlier this year and is expected to hike minimum pay again next year. Vietnam is also discussing double-digit wage increases for next year. South East Asian governments need to find a way to improve their peoples’ lives over the long term before the world’s basic goods manufacturers move somewhere else.