Posted on 02/12/2015 8:31:25 AM PST by TangoLimaSierra
If you own a bond, and interest rates rise, which they certainly will over the next 20 years, it’s value drops. The Fed has sidestepped this issue by stating that they will hold to maturity, but ant private entity would book the losses.
Also, contrary to what you said about the Bear Stearns portfolio, I read that the 75 billion dollar face value Maiden Lane portfolio is valued at something like 28 billion now.
As to debt quality, a lot of the problem was caused by very complex debt instruments, such as CDOs, which are not Federally guarateed.
Finally, a US Treasury guarantee of crappy loans is a taxpayer guaranree. Fannie and Freddie weren’t officially supposed to be guaranteed. That guarantee was in itself a bailout.
Opinions may vary, of course, but thats how I see it.
Here’s a link that might interest you:
http://money.cnn.com/news/storysupplement/economy/bailouttracker/
It wasn’t just a matter of supplying temporary liquidity to the industry. AIG, for example was a great company with one unbelievably screwed up division—the one that wrote credit default swaps and put the whole company at risk.
Anyway, the best book I’ve read on the whole 2008-9 mess is “The Sellout” by Charles Gasparino. It shows how the credit boom evolved over roughly 20 years, describes all the players in detail, and reads like a novel. Maybe you’d like to check it out.
What does this have to do with the homosexual agenda?
Sure. So what?
The Fed has sidestepped this issue by stating that they will hold to maturity, but ant private entity would book the losses.
And?
Also, contrary to what you said about the Bear Stearns portfolio, I read that the 75 billion dollar face value Maiden Lane portfolio is valued at something like 28 billion now.
That's either very old or very bad info.
As to debt quality, a lot of the problem was caused by very complex debt instruments, such as CDOs, which are not Federally guarateed.
Again, the Fed owns guaranteed bonds. Treasuries and bundles of mortgages. Not very complicated, but guaranteed and not crap.
Finally, a US Treasury guarantee of crappy loans is a taxpayer guaranree.
Yes. The Fed owns bonds with a taxpayer guarantee. Not crap bonds.
Opinions may vary, of course,
Of course, but the facts don't.
We have a problem here, partly my fault.
We’re mixing two things, which are related, but not the same thing—namely QE and the bailout/TARP, which occurred earlier.
The TARP assets had a lot of crap in them. You can say otherwise, but we’re going to have to disagree.
QE came later. Yes, you are right that the Fed is buying government guaranteed assets for QE, and I was mixing that with the earlier activity. I don’t like that, but for different reasons. I view QE as monetization of debt, as long as we run a deficit.
Yes, the assets are as good as the US Treasury says they are, but consider: The US Treasury issues bonds to fund operations, which are sold to primary dealers, not directly to the Fed. If they were issued by the Treasury and purchased directly by the Fed, everyone would call it debt monetization. However, if the Fed buys them from the primary dealers, and does this often, it’s not considered debt monetization, but the difference is the figleaf of having an intermediary.
Traditionally, when the FED wanted to control interest rates, it would do so through open market operations, buying Treasuries to lower interest rates (bidding up their price lowers rates), and the money would enter the economy. Vice-versa for tightening—they would sell bonds they held in inventory, soaking up dollars that were around.
QE does this on a huge scale, and is in my view a type of monetization of the debt. When that happens, it affects my view of Treasury credit quality. Apparently S&P felt the same way when they downgraded the US credit rating from AAA.
As far as confusing the two issues in my comments—purchase of debt instruments during crisis and the later QE, that’s my error.
Bank TARP was the Treasury buying preferred stock in the banks. Some banks failed before they repaid, but the Treasury didn't buy existing assets, so your claim is wrong.
Let’s give it a rest.
Glad to help you out.
Glad you think you did.
I guess, if you continue to hold your false beliefs, I didn’t.
OK, I wasn’t going to respond, but I have to ask you this:
What do you think of QE? Do you think it’s a good thing? And if so, why?
Rather than snipe at some of the details in my comments, why don’t you tell me what you’re thinking?
At the beginning, absolutely vital.
At the end, little to no help.
And if so, why?
Money supply shrank 30% during the Great Depression.
Something similar could have happened in 2008/2009, if Bernanke hadn't opened the spigots.
Good response.
From my side—it went on too long, which I guess you agree with.
As to the front end—I’m less convinced, but a lot of people see it the way you do. I have to say, though, that the state of the economy makes a difference... in 1930, the US government was proportionately smaller and relatively debt-free. Taking on debt then.. as a liquidity measure.. would have been helpful, especially if it was through spending that reached the economy. Some of it did—as in the WPA projects.
Do you think that QE will be helpful or ineffective in Japan, where it is being introduced with a vengeance, or in the ECB?
It doesn't matter whether the gold is there or not. It's a barbarous relic which is held for reasons of tradition and besides, you can't eat it. /S
Private banks routinely printed their own currency before 1913. And you had to be careful whose banknotes you held because they weren’t all sound.
“It is alarming that the Federal Reserve, which was granted Monopoly money-making power, is now specifically trying to stop my legislation,”
Someone needs to tell Rand Paul that every local bank sitting on a street corner prints new money each time it makes a loan. That’s how fractional reserve banking operates.
I suspect that he does know the difference, he’s just beating this drum because he wants to look like he’s a populist.
Anyone wanting a look at the Fed’s numbers has been able to get that each and every week in Barron’s:
http://online.barrons.com/public/page/9_0210-fedresdatabank.html
“they also bought MBS, as you say, which were backed by Fannie and Freddie, and thus ultimately by the US Treasury.”
For several decades prior to September 2008 Fannie and Freddie had been Fortune 500 companies listed on the NYSE. They ceased being government agencies back in the days of LBJ and Nixon.
I don’t think that there was any legal requirement for the Treasury to backstop them, stockholders and bondholders could have been left holding the bag. Backstopping them was a political decision made by Dubya and Paulson.
“Anyway, the best book I’ve read on the whole 2008-9 mess is “The Sellout” by Charles Gasparino”
There’s several other good ones if you have the time.
“ECONned by Yves Smith
“Chain of Blame” Muolo and Padilla
“Fool’s Gold” Gillian Tett
Yep, I agree. Freddie and Fannie were government sponsored corporations, but were supposed to stand on their own. There was a sense that there was an implicit guarantee... that the US Government wouldn’t allow them to fail. That guess turned out to be true.
Those companies were run badly. Highly leveraged, taking in crap loans that the rating agencies said were good, and lavishly paying such politically connected officers as Jeremy Raines and even Jamie Gorelick (she who created the Chinese wall preventing intelligence agencies from sharing data before 9/11).
I also read “The Big Short” by Michael Lewis, which is good as well as entertaining, but less comprehensive, because it follows several people who saw the mortgage debacle coming and traded on it, to their advantage.
I’ll check out some of your recommendations.
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