Mortgage Rates Forced Down by the Fed

Submitted by Rich Toscano on January 2, 2009 - 5:45pm

As I noted a couple weeks back, the Federal Reserve will be conjuring money out of thin air to buy "large quantities" (their words) of mortgage-backed securities. The mere anticipation of this flood of freshly-printed cash into the mortgage market has been enough to increase the demand for mortgages and thus lower rates.

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Submitted by TheBreeze on January 2, 2009 - 7:03pm.

Guess who will be managing the actual buying:

The Federal Reserve will print money to buy $500 billion worth of mortgage-backed securities by June, specifically MBS issued by Fannie, Freddie and their sister Ginnie Mae. And guess who the Fed has hired to manage the purchases? PIMCO, Goldman, BlackRock and Wellington.

This is quite a scam for all of them, especially PIMCO. The ultimate self-bailout you might call it. As of June 30th, 61% of the PIMCO’s assets were invested in MBS. $500 billion in total. No doubt the others also own a pile of Fannie/Freddie/Ginnie bonds.

In sum, these firms just got hired to use the public’s money to buy assets from themselves. (Or, as Mr. Mortgage puts it, foxes are running the hen house.)

Mr. Mortgage is theorizing that this is being done in an attempt to stop future wars:

To ensure the system stays together, wars are not waged and mortgage rates don’t shoot to 20%, the US taxpayer is being called upon to clear the balance sheets of Foreign Central Banks and investors. These parties which did not understand that there was never an ‘explicit’ guaranty and trusted that what we were selling were not balance sheet nuclear bombs are needed this minute to fund our book.

The Bush administration has also put us on the hook for a $249 billion guarantee of Citi assets:


Submitted by patientrenter on January 2, 2009 - 11:07pm.

TheBreeze, I agree that there is pressure from many sources to bail out people who loaned and borrowed with abandon. But your identification of the "Bush administration" as a source of the abandon is disingenuously one-sided.

Barney Frank, Chris Dodd and Chuck Schumer are, along with Bush and the Republican real estate/investment banking cheerleaders, up to their necks in blame for what is happening now. And the borrowers who took money they didn't intend to repay, or didn't have the capacity to repay, are to blame along with the mortgage brokers, mortgage bankers, rating agencies, and investors who shoveled money at them without checking they could and would repay. And just because that covers a very large fraction of the US's population doesn't make it any less culpable. We don't excuse war crimes on the basis that "everyone was doing it", do we?

Just thought I'd remind everyone of the full breadth of blame here. All this argmentation over which participant in the scam is not really to blame is nothing more than positioning to get the rest of us to accept a bailout for those participants.

On Rich's post, I would say that the more the US govt props up sectors of our economy that depend on bloated asset prices, through money creation and interest rate suppression, the more unsupported the dollar becomes. It's already lost a lot of value against the yen, and it may lose significantly more if these govt policies continue.

Submitted by Fearful on January 3, 2009 - 5:17pm.


From what you know of the bond market, were the mortgage rates forced down by the earlier Fed announcement, or does the market wait until the purchases actually begin?



Submitted by mentallyfit2 on January 6, 2009 - 8:15pm.

The best (or worse part depending on where you are coming from) is a fact that a lot of people may have missed...PIMCO put Greenspan on their payroll after he left the Fed...yep!

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