Fed will start buying up Agency MBS

[jk]

Re: Fed will start buying up Agency MBS

Quite prescient, jk, what are you really, a banker?

bernanke really is tranparent. he laid it all out in his famous speech, and he's been doing exactly what he said he'd do.

[FRED]

Re: Fed will start buying up Agency MBS

bernanke really is tranparent. he laid it all out in his famous speech, and he's been doing exactly what he said he'd do.

The Bernanke Fed is not exactly full of surprises.

Ka-Poom is a Rhyme not a Repeat of History - Janszen - Sept. 2006

Leading to the inevitable inflation default.

On a lighter note, here's bit of Greenspan wisdom (Real Audio) for those who miss him!

[blazespinnaker]

Re: Fed will start buying up Agency MBS

What banks?

Probably all the banks that need the repos for reserve purposes.

I wonder what they're valuing mortgage securities at. Whatever the bank decides it's worth? Mark to myth?

Whee!

[jtabeb]

Re: Fed will start buying up Agency MBS

Obviously this whole interest rate thing is not working at all.

Look for the fed to trying innovative measures, including directly targeting its liquidity measures.

Major moral hazard, but when you think about it, the collateral damage that it does by massive fed funds rate movements is probably a lot worse in this particular situation.

I also think this will mitigate ka-poom to a certain degree. Gold will see major declines.

I'm amazed that people let the fed do this. How many times can you burn all the shorts to prop up all the players who over-bet, over-borrowed, and over-played with OPM?

I really got it wrong, I guess. Responsibility breeds contempt not admiration. Lesson learned. Form this point forward I will be the most irresponsible SON-OF-A-BITCH the world has ever seen. (to the point that my actions will pose a systemic risk to the entire world economy and will require all the central banks in the world to bail-out the entire financial system or risk it's collapse)

Lesson learned, thanks BENNY.:mad::mad::mad:

[DemonD]

Re: Fed will start buying up Agency MBS

here's an excerpt from a post of mine from 2/12/08, in the "zero bound diaries" thread:



there are now new extensions of the taf, with different acronyms, but the idea is the same. let the fed accumulate the junk so the market doesn't have to price it. the junk can mature in the care of the fed- if/when it goes bad, it will be put back to the banks, but the process will be stretched out and the banks will have time to earn some profits and re-capitalize, and the junk paper will likely have some residual value.

JK: I have a more onerous reading on this. If, nay, when, the paper goes bad, and the Fed puts it back on the banks... wouldn't the fed just roll the loan they gave over to the banks into another loan? In other words loan the bank the difference between the money they owe the fed and the market value of the paper?

And then roll that loan into another loan, and another and another... (evergreen loans)....?

To me this seems way way way more inflationary that simple interest rate cuts. At least this is my understanding... am I wrong? And if I am where am I misunderstanding what's going on? I would have though the dollar would have tanked and gold rallied at least another 5% on this move.

[jk]

Re: Fed will start buying up Agency MBS

i think this manoeuvre is aimed at liquifying the banks [they can't sell this paper] and simultaneously postponing market pricing for the paper [which for all that it is "AAA" would now be near-zero]. no one here will think that this will suffice to avoid severe pain, but hope springs eternal at broad and wall. the market was oversold and this was a great excuse for a bounce, which then ran the shorts. likely this was a 90percent day, and perhaps the beginning of an intermediate term - weeks long - rally. it delays and stretches out the pain, perhaps allowing some recapitalization of broken banks. alan abelson, this past weekend, said we had progressed from the goldilocks economy to the humpty dumpty one. but that the economy would indeed, eventually, be put back together. just that then it wouldn't look like goldilocks, but like humpty dumpty covered in band-aids.



edit: transferred from another thread
Quote:

Originally Posted by Nicolasd Mega, You can review the details of today's stock market action and the underlying reason for the "rally" : http://market-ticker.denninger.net/ Basically, it is aligned to Metalman's comments plus some entertaining language. Nicolas

good link. here's another with basically the same story
http://wallstreetexaminer.com/?p=2434

reading these 2 makes it clear that the fed's move today was something that should have sent fear through the markets, since it was about the fragility of the banking system. the markets, however, are so used to seeing the fed as their candyman that they mistook a desperate shot of adrenaline to the heart for a speedball of heroin and cocaine.

[Nicolasd]

Re: Fed will start buying up Agency MBS

i think this manoeuvre is aimed at liquifying the banks

Some are already arguying about the banks and brokerage stocks short term viability or lack thereof :eek:

http://www.bloomberg.com/apps/news?p...4&refer=canada

[jk]

Re: Fed will start buying up Agency MBS

people should really look at the 2 links available above. they say, essentially, that the primary dealers have all been in a short squeeze. they have been short treasuries, which have been rising sharply, and long other debt, which has been falling sharply. what the fed is doing, from this perspective, is supplying them with a lot more treasuries to cover their short positions, while taking their long credits off their hands. this increase in the treasury supply explains yesterday's sell-off in the treasury market. the fed is trying to save some or all of the primary dealers from imploding. this is important for the viability of the current financial system, but doesn't do anything to solve the issues driving the u.s. economy deeper into recession.

[GRG55]

Re: Fed will start buying up Agency MBS

people should really look at the 2 links available above. they say, essentially, that the primary dealers have all been in a short squeeze. they have been short treasuries, which have been rising sharply, and long other debt, which has been falling sharply. what the fed is doing, from this perspective, is supplying them with a lot more treasuries to cover their short positions, while taking their long credits off their hands. this increase in the treasury supply explains yesterday's sell-off in the treasury market. the fed is trying to save some or all of the primary dealers from imploding. this is important for the viability of the current financial system, but doesn't do anything to solve the issues driving the u.s. economy deeper into recession.

Well, as Jim Rogers points out, what is wrong with letting a few of the primary dealers go under?

Or does the Fed's mandate specify that it's obligation is to ensure full employment in the FIRE economy, first?

[jk]

Re: Fed will start buying up Agency MBS

Well, as Jim Rogers points out, what is wrong with letting a few of the primary dealers go under?

Or does the Fed's mandate specify that it's obligation is to ensure full employment in the FIRE economy, first?

i think they are all so interdependent via counterparty agreements [otc derivative contracts] that no one knows if you CAN let only a few go under without dragging them all down and the whole banking system with them.

[c1ue]

Re: Fed will start buying up Agency MBS

Jim is also forgetting the mutual back scratching between FIRE and Fed, and politicians.

Letting their contributors eat the actual losses from their actions is being a 'bad' politician - one that won't stay bought.

[Milton Kuo]

Re: Fed will start buying up Agency MBS

I'm surprised this no one has mentioned this article yet, "Moody's, S&P Defer Cuts on AAA Subprime, Hiding Loss." I wonder if this is a coincidence or it was coordinated to allow the banks to dump some of their "AAA" trash onto the Federal Reserve?

http://www.bloomberg.com/apps/news?p...2ko&refer=home

[GRG55]

Re: Fed will start buying up Agency MBS

I'm surprised this no one has mentioned this article yet, "Moody's, S&P Defer Cuts on AAA Subprime, Hiding Loss." I wonder if this is a coincidence or it was coordinated to allow the banks to dump some of their "AAA" trash onto the Federal Reserve?

http://www.bloomberg.com/apps/news?p...2ko&refer=home

The credit rating agencies, who were in the kitchen when this whole mess was being cooked up (and profited handsomely), should have no reputation left. Would you trust a "AAA" rating from them?

What I find surprising is that the lawsuits against them aren't piling up faster.

[Milton Kuo]

Re: Fed will start buying up Agency MBS

The credit rating agencies, who were in the kitchen when this whole mess was being cooked up (and profited handsomely), should have no reputation left. Would you trust a "AAA" rating from them?

What I find surprising is that the lawsuits against them aren't piling up faster.

I just can't shake the feeling that they're working with the Federal Reserve and the banks to prevent a total, immediate meltdown of the banking system.

I think it's obvious by now to everyone, even bankers, that a lot of AAA-rated paper is of questionable quality. To salvage what little is left of their credibility, the ratings agencies should quickly re-evaluate the paper they have already rated. Leaving as much of the garbage as there is with AAA ratings just further sullies their already damaged reputations. It's one thing to unknowingly make a mistake and then make amends upon discovering the mistake. It's another thing altogether to make a mistake and then pretend that nothing is wrong despite overwhelming evidence to the contrary.

Isn't it convenient that the agencies haven't lowered the ratings on the AAA trash so that the banks can use it as collateral to borrow from the Federal Reserve?

[GRG55]

Re: Fed will start buying up Agency MBS

I just can't shake the feeling that they're working with the Federal Reserve and the banks to prevent a total, immediate meltdown of the banking system.

I think it's obvious by now to everyone, even bankers, that a lot of AAA-rated paper is of questionable quality. To salvage what little is left of their credibility, the ratings agencies should quickly re-evaluate the paper they have already rated. Leaving as much of the garbage as there is with AAA ratings just further sullies their already damaged reputations. It's one thing to unknowingly make a mistake and then make amends upon discovering the mistake. It's another thing altogether to make a mistake and then pretend that nothing is wrong despite overwhelming evidence to the contrary.

Isn't it convenient that the agencies haven't lowered the ratings on the AAA trash so that the banks can use it as collateral to borrow from the Federal Reserve?

How about AAA-rated MBIA and Ambac? While they are desperately selling equity to recapitalize their bombed out balance sheets? What a farce.