We've only just begun
According to my reckoning, between the close of business Thursday and Tuesday, the Fed's extra $352 billion in liquidity enhancing measures bought a 1.3% increase in the S&P500.
Since we need a 19.4% rally to regain October's Suckers' High at 1576, we might only need another $4.8 trillion in new measures to do the trick! Neatly, that would equate to the Fed buying out the outstanding total of Agency/GSE-backed mortgage pools, with enough room to nationalize Freddie and Fannie at current market value, into the bargain.
Over to you Ben...
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Comments (12)
Comments (12)
Jibberish.
You are talking jibberish.
1. Fannie Mae and Freddie Mac are already nationalized institutions as tax payers are on the hook for their losses. These evil institutions are independent companies only in that they have un-collateralized debt that they call stock. The amusing part here is their collaterized bonds are worthless as their collateral is worthless. So it is only a paper shuffle to bail out Fannie and/or Freddie by the Federal Anti-Reserve.
2. Much worse than 1, the Federal Anti-Reserve can not "BAIL" anyone out. It can only transfer wealth from one person to another by giving the BAILEE money by reducing the wealth of the BAILERS, US poor saps in the economy.
Published: March 12, 2008 8:19 AM
corrigan
No, sir!
FNM and FRE are theoretically private sector companies and the government guarantee on their debt is only implicit and therefore untested, hence why the spreads blew in recent weeks.
No one said anything about creating 'wealth', least of all me.
PS the post was intended to be facetious (perhaps you should have issued it with an 'irony warning' sticker when you moved it from the private list, Mr T?)
Published: March 12, 2008 8:25 AM
Jaq Phule
And now, I'll have Karen Carpenter singing in my head all day. Thanks.
Published: March 12, 2008 8:42 AM
jeffrey
But how could the irony escape anyone? Oh I forget: this is the internet.
Published: March 12, 2008 9:01 AM
TomG
a prescient inverse pyramid arrangement of sorts, unlike tulipomania:
http://mises.com/forums/t/1549.aspx?PageIndex=5
Cheers!
Published: March 12, 2008 9:03 AM
mike
Can anyone explain how lending USTs to primary dealers in exchange for MBSs helps the market? What do the dealers do with the loaned USTs, that must be returned in 28 days?
Published: March 12, 2008 9:37 AM
David Spellman
Irony and sarcasm escapes many people. Psychiatrists have a diagnoses for it called concrete thinking.
If you ask someone why people who live in glass houses shouldn't throw stones, a concrete thinker will tell you it is because replacing the windows is expensive.
Published: March 12, 2008 10:17 AM
corrigan
The USTs the dealers get in return will be very readily accepted either for purchase or as private RP collateral by other market participants who currently have plenty of cash and nowehere to put it (part of the reason UST yields have fallen so low that implied real yields are NEGATIVE on shorter date TIPS issues)
Published: March 12, 2008 10:27 AM
Forgive me Sean:
I must be getting old. I am tiring of hearing the repeated terms of "Reserves" and "Bail Out". Obviously Reserve is to give the impression that there is a quantity of money that is being stored someplace while the term Bail Out refers to giving some failed schmucks money from the Reserve.
If we replace the terms Reserve with Loot and bailed out with received stolen goods then the discussion would be more accurate.
Published: March 12, 2008 10:33 AM
mike
why not just do a repo directly on the MBS? wasn't the Fed doing that with the TAF already? If the dealers sell the USTs, won't they have to buy it back later? It would appear interest rates are only going lower in the next 28 days. Doesn't that ensure a loss to a dealer who sells the USTs now?
Published: March 12, 2008 12:34 PM
mike
Sean: what do you think of Lee Adler's assertion that this was arranged for the primary dealers to cover short positions?
http://wallstreetexaminer.com/?p=2434
Published: March 12, 2008 12:38 PM
jp
mike:
why not do a direct repo on MBS? The Fed is already doing plenty of these, plus accepting MBS via TAF. They have been compensating by selling long term bonds and t-bills, so the overall effect on the money supply is nil. What has changed are Fed assets, which now contain more private debt like MBS and less government debt.
The way I see it, the treasury bill/MBS trade is just another way to carry out this same goal of switching Fed assets over to MBS.
Published: March 12, 2008 11:26 PM