The FED bought What ??
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Since the Orwellian rewriting of the Guidelines the Fed has been gradually expanding its MBS purchases, which reached a crescendo this Friday. This (relatively) new power of the Fed is startling given the current liquidity crisis prevailing in the mortgage markets of late. By openly stating its willingness to buy thousands of mortgages and temporarily to expose itself to the financial health (or lack thereof) of the homeowning public, and doing so when the rest of the world is shunning them, the Fed is propping up mortgage markets, and thereby the housing market. This despite the fact that open market operations are not supposed to support individual sectors of the market or channel funds into issues of particular agencies[4]
While the purchases are only temporary 鈥?the cash must be returned by Monday 鈥?one wonders how long before the Fed grants itself the power to buy MBS permanently. Either way, the Fed's response shows that it is worried about the growing mortgage crises and willing to do anything to buy its way out of it. Unfortunately, by buying up MBS and propping up the market the Fed will only cause more harm than it already has.
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John Paul Koning writes for Pollitt & Co, a brokerage based in Toronto, Canada.
The FED bought What ??The Fed has bought a lot of sub-prime mortgages? Doesn't this double the loss if the mortgages default?
Maybe the Fed has finally bought a one way ticket to the 'attention of the public' and will get some bad publicity for a change... Maybe the media will have to cover it when these mortgages go 'bad' and the Fed tries to issue more securities to cover the debt it has to the banks that it is trying to support.
The FED bought What ??Wow.
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