Posted on 03/10/2008 6:15:48 PM PDT by shrinkermd
With worsening strains in credit markets threatening to deepen and prolong an incipient recession, analysts are speculating that the Federal Reserve may be forced to consider more innovative responses -- perhaps buying mortgage-backed securities directly.
"As credit stresses intensify, the possibility of unconventional policy options by the Fed has gained considerable interest
...Since 1932, the Fed has had the authority to lend, against collateral, to individuals, partnerships or corporations other than banks in "unusual and exigent circumstances," subject to the vote of five members of the Board of Governors. (The board has seven seats, but two are currently vacant.) This power has never been used.
Mr. Feroli noted that Congress in 1966 gave the Fed temporary authority, made permanent in 1979, to purchase obligations of government-sponsored enterprises, such as Fannie Mae and Freddie Mac.
So far, the Fed hasn't purchased GSE obligations except in its short-term repurchase operations. When the federal budget was in surplus, the Fed considered outright purchases of GSE obligations, but judged against such a move as it would reinforce the perception of an implicit government guarantee.
Last week, the Fed said it would lend banks $100 billion starting this week in 28-day loans through its new Term Auction Facility, at which banks can post a wide variety of collateral, including mortgages, corporate loans and other items that have become harder to sell in the open market. And it said it would make money-market loans of as much as $100 billion to its network of 20 bond dealers for 28 days, double the usual maximum term, and structure them to encourage dealers to submit mortgage-backed securities guaranteed by Fannie and Freddie Mac.
Sen. Christopher Dodd (D., Conn.), chairman of the Senate Banking Committee, has suggested creating a new government corporation that could buy mortgage-backed securities
(Excerpt) Read more at online.wsj.com ...
I don't need that instruction. It is Toddsterpatriot who doesn't get this point. LOL!
Again, so the FED creates money and provides it to the banks, who loan it out which then creates demands for goods and services to create a "capital good" that goes belly up losing the value of those goods and services for the rest of us but with the banks and brokers taking a large golden slice off the top for their hookers condos jets and remote island escapes.
They get the benefit of the golden slice, and the rest of us get stuck with the loss. You think that they earned it. It is a part of our economic freedom and liberty. Others her, myself included, take the opposite view.
I thought that the notion that some pigs were more equal than others and had special rights (imaginary hookers, condos, jets, remote island escapes) for the greater good was right out of the communist playbook. I must have been misinformed.
Just nonsense, I am sorry.
Greenspan was the key. Lobbyist to Congress was the accelerant.
Greenspan dropped the rates. Congress looked the other way on loaning money to people who couldn’t qualify, including illegal aliens. In fact, some members used the term ‘financial apartheid’ to describe ANY qualifications that would preclude an unqualified minority family from buying a home.
There is ONE person to blame here, and that is Uncle Sam. Add to all of this the ethanol scam, lack of border/employer enforcement on illegal aliens, and you have the scenario you see before you today.
This scam is EXACTLY the same scam they pulled with Junk Bonds in the 80’s, only instead of turning bad corporate debt into securities, they did it with bad mortgage debt. Literally, no difference, except perhaps one - in the 80’s, the big banks weren’t stupid enough to buy the Junk Bonds.
Here in 2006, the banks bought the very sham instruments they had concocted in the first place. They did it on the premise that never before had home values declined nationally. On the basis of that talisman, they figured the risk was minimal.
Qualifications for a mortgage became, “Please fog this mirror - congratulations”, to the point that they had ‘no signature mortgages’.
This ENTIRE mess was created by Mr. Greenspan, and mortgage industry/Wall St. lobbyists, exacerbated by the ‘energy’ bill (or the ‘ADM subsidy bill’).
Facts are painful. Deal with it.
The only new thing the Fed should try is to raise interest rates to 20%, defend the dollar, and liquidate all bad credit within six months.
If Chavez isn't dead in a year, and domestic oil flowing like crazy, the cost is going to wind up MUCH higher that $5 gas.
Your use of non standard words when putting words in the mouths of others is unhelpful. This phrase or its subphrase prior commodity cover or even commodity cover appear nowhere in my searches of the financial literature.
The beneficiaries of past credit issuance include builders, those who worked for them, entire communities that supplied those, etc etc, and those stuck with the loss include homeowners who paid too much, bank stock holders both large individual positions and portfolio investment, etc. Not remotely "you" on the latter score, nor have you failed to benefit from the former, throughout the boom.
The rest is pure class warfare socialist nonsense and resentment, without a scrap of justice or belief in human liberty involved. Completely unworthy of this site, I might add.
Let's see..their actions are limited to:
1. inflating the money, or
2. not inflating the money
inflate or not inflate...(thinking) ...
(still thinking)...
Hhmmm...
You have got to stop making arguments that undermine your entire position. This is again exactly what we have all been saying. You think rapidly increasing the number of dollars in existance is a good thing. Others of us think it isn't.
The Fed can control the size of its own balance sheet, yes. It is also the principle regulator of the national banks, and can direct their actions in numerous ways, both by incentives and directly. It can change their required reserve ratio, it can change which assets it buys or sells, it can change which interest rates it targets, it can pay attention to measured inflation or unemployment or the dollar or commodity prices or financial markets, etc.
People with an abundance of ability to pay it back.
Would you?
Of course not, I'm not an idiot. Why do you want me to borrow money?
The purpose is to put an end to consumption fuelled by borrowing. It will end the "economy", that phony construct of useless paper pushing and asset flipping - which will end anyway, in the long run.
I am all ears for the instruction you are probably unqualified to give us on the grounds that you don't even understand that expanding the money supply (beyond what is need for expanded economic activity) is inflationary. You are the only person here who does not understand that point.
Now, I am happy to have a refutation of the point in all its mathematical glory, if you wish. Please furnish it. THAT will not snow me.
But no, it doesn't undermine a single thing I've been saying. Remember, I deny that inflation picks anyone's pocket, and I deny there is anything fundamentally wrong with credit issuance. Why would I see anything wrong with changing the number of dollars in existence?
Why do you think you have some prior right for the number of dollars in existence to remain unchanged for all time? Where would you acquire such a right? Dollars are the debts of the Fed - why should they be required to remain constant? Are your own debts required to remain constant for all time, lest you upset the value of some of my assets?
Whenever a man is telling you what he honestly believes a price *should* be, there is a test - that at that price, he will take either side of the transaction. Whenever instead he demands both to name the price and to pick the side, then you know he is "just jawing" and not giving you his honest opinion.
Every child understands this. It is just "you cut, I choose".
Any demand to have the big half after also deciding where to cut, does not deserve the slightest consideration. It condemns itself.
If I can increase my debt by pledging your assets as collateral, is that fine with you?
I must have been misinformed.
On an ongoing basis.
If the money supply expands fast enough, then the price level will rise. How fast it has to expand for the price level to rise at this or that rate, is not a matter that can be known beforehand. You have to try it and see, it changes regularly with all shifts in the nature of the economy etc.
And even the average price level rising, still does not pick your pocket, or it goes without saying, break your leg. You have no prior right to the level of prices measured in dollars remaining unchanged forever.
You are also not forced to hold dollars, net (e.g. you can carry real property with nominal debt), so such changes need not harm you in any way. You are responsible for your net exposure to changes in the value of dollars, just as you are responsible for betting on the value of gold or stocks or real estate, or not.
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