The Federal Open Market Committee (FOMC) informed the public this week that it will expand its dominating position in the mortgage-backed security (MBS) market, throwing an additional $750 billion there. Markets rallied on the news with Treasuries shedding up to 51 basis points.
Economists were up in arms about the Fed's measures. Stephen Stanley of RBS Greenwich Capital said via the WSJ blogs:
Bloomberg summed it up in the lead of their coverage:
By committing to buy Treasuries and double his purchases of mortgage debt, Federal Reserve Chairman Ben S. Bernanke signaled his determination to avoid a repeat of the Great Depression and his willingness to pump as much cash into the economy as needed to end the current crisis. San Diego real estate
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OK People, for those too dopey to attend Freshman Economics: Since 2001, the Federal Government has created a deficit of $3 Trillion. We’ve devalued the dollar and borrowed money from China; thus creating an inflationary, recessionary economy. While interest rates were artificially low, people borrowed mortgage money at the going rate. Mr. Bernanke and his buddies created this situation and now they need to fix it.
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They’ll wait for the next up cycle and then sell at a handsome profit to new suckers I mean investors.
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They are effectively removing bad assets from the banks balance sheets to try to get the credit flowing again.
Won’t work, whatsoever. Banks were only lending large-scale because they could resell the debt and negate the risk. No one wants to buy crap loans anymore, which is why the FED has to buy them.
It will help banks become more liquid, but it will do nothing at all to help the economy. Banks aren’t going to extend credit to deadbeats anymore. Fannie and Freddie are already bankrupt.
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