The Federal Reserve Bank of New York announced Monday it has started buying mortgage backed securities (MBS), as part of its $500 billion program to improve credit market liquidity and jump-start the housing market.
The Fed said it began buying MBS guaranteed by Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), and Ginnie Mae. Purchase amounts will be published on the Fed's web site beginning January 8 and will be updated each Thursday.
Goldman Sachs Asset Management (NYSE: GS), Pacific Investment Management Co., and Wellington Management Co. will manage the $500 billion in MBS the Fed expects to purchase by June.
Economist Richard Felson said the Fed's tactic, called quantitative easing, is needed, but it remains to be seen whether it will be enough to free-up money in constrained credit markets.
"The initial $500 billion amount is not small, but it's still just a fraction of the $12 trillion home mortgage market," Felson said. "But don't misunderstand, the banks and financial institutions will appreciate the extra money. The question then becomes, will banks make a portion of that money available for loans, or will they sit on it? That's the $64,000 question, pardon the pun." Felson added that the decreased supply of MBS should improve their prices and lower their yields, thus lowering the spread, or the mortgage interest rate banks need to charge to ensure profitable securities.
Felson said he expects the initial $500 billion to propel a hodgepodge of bank responses - - with some banks freeing-up credit while others, perhaps with more-problematic balance sheets, using it to rebuild capital.
Monetary Policy / Economic Analysis: How well will the U.S. taxpayer fare in the Fed's quantitative easing program? That depends on what percent of the MBS are comprised of toxic assets (bad mortgages). Stay tuned.
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Reader Comments (Page 1 of 1)
1-05-2009 @ 3:49PM
BHarrison said...
And the defrauding of the American people continues . . . .
These corporations should have to either "absorb" the losses or simply file for bankruptcy. That is the Free Market Economy "natural resolution" of these types of management and economics.
We are well past the shock of major firms going under, and runs on banks. The natural market should determine the outcome of these matters.
All that is being done is to "bailout" irresponsible and/or corrupt corporations (and their managment personnel who orchestrated and perpetuated the felonious crimes of pyramid and Ponzi schemes and other forms of BLATANT FRAUD. They are merely passing the losses to the tax payers . . . and there is NO JUSTIFICATION for doing that at this point.
The CRIMINAL, unethical CEOs and upper managment are being "bailed out"; and the taxpayers and other citizens are being fleeced.
It's time to put a stop to all of this; and time to start indicting and prosecuting CEOs and other "managment personnel" who are responsible for these blatant FRAUDS, none of which "happened in a vaccum" . . . they knew damn well what they were doing.
1-05-2009 @ 5:47PM
James raider said...
MYTHS OF DEBT
Behavior modification requires acknowledging past mistakes.
What did we do for twenty years?
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http://pacificgatepost.blogspot.com/2009/01/myths-of-debt-to-be-corrected-for-2009.html
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Now let’s get on with the correction.
1-05-2009 @ 3:49PM
BHarrison said...
And . . . who is going to "oversee the overseers" who failed to do their fiduciarry duties in the past"? Without full disclosure and transparency, no one can "trust the system". The market analyzist who had been providin the SEC with documented and (sic. now) irrefutable information since 1999 was simply ignored by the SEC. This was just a 'simple oversight"; Madoff had lied and bluffed his way through a reported EIGHT (8) "investigations since 1999 . . . and the SEC reportedly didn't find ANY basis of a Ponzi scheme inspeite of al of the info that they had been provided? What does this say in regard to the competence and due diligence of the SEC and our other regulatory agencies?
Is there ANYONE who REALLY has ANY FAITH and/or CONFIDENCE in the Fed or the SEC, or ANY of the other regulatory agencies? The tope management of all of these departments need to be fired forthwith.