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 ...
Lord, spare us high school drop out economics...
Well, borrow and spend is certainly working well. /s
Do you think bailing out Goldman, Citi, Bear Stearns and the like for putting together these garbage maortgage backed securities is the right idea? To re-inforce bad behavior with a Fed bailout only encourages more risk down the road.
What the President should do immediately is issue and executive order opening ANWR and our coastal waters to oil development,. Simultaneously he should declare Venezuela a sate sponsor or terrorism and stop importing their oil. Then he should open the Strategic Petroleum Reserve to replace the 2 mil bbls a day from Venezuela. These actions would cut the price of oil by $30 a BBL in less than a month. Venezuleans would overthrow Hugo within six months, because they have no alternate market for their heavy oil. It can only be refined in specialized refineries located in the USA.
The Fed should continue to provide liquidity, but not cut rates. We need to support the $ and like a drunk with a hangover, there is no miracle cure for the pickle easy credit and lax undewriting standards has given the economy. Cut corporate taxes immediately, encourage ALL forms of energy development but ethanol. I would rescind the ehtanol mandate immediately.
If these steps are done, the financial markets will feel lots of pain, but lowering energy prices and commodity prices will cushion the pain to consumers.
There are no easy answers folks, I am 90% in cash since November, and there are many others out there with cash to come in and buy assets and condos in florida on the cheap. Gov’t intervention in credit to loose, interest rates too low, and making us use our food to make ethanol while closing our lands to oil exploration has sent our wealth overseas, ruined the standing of the dollar as the reserve currency of the world, and threatens to undermine our economy. In short gov’t caused this problem, more gov’t intervention in the monetary market will only make things worse. Fed cuts rates but mortgage rates are rising, why do yo uthink that is?
My favorite economist! My son has been accepted to Hillsdale College where Von Mises left his entire collection and we will be visiting in two weeks. I am hoping my son goes there, instead of one of the other schools he is thinking about.
My favorite economist! My son has been accepted to Hillsdale College where Von Mises left his entire collection and we will be visiting in two weeks. I am hoping my son goes there, instead of one of the other schools he is thinking about.
My favorite economist! My son has been accepted to Hillsdale College where Von Mises left his entire collection and we will be visiting in two weeks. I am hoping my son goes there, instead of one of the other schools he is thinking about.
"Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump."~~Ludwig von Mises
"True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression."~~Ludwig von Mises
"Credit expansion is not a nostrum to make people happy. The boom it engenders must inevitably lead to a debacle and unhappiness."~~Ludwig von Mises
"What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom is built on the sands of banknotes and deposits. It must collapse."~~Ludwig von Mises
"If the credit expansion is not stopped in time, the boom turns into the crack-up boom; the flight into real values begins, and the whole monetary system founders."~~Ludwig von Mises
The Fed should stop reacting to every tantrum that traders throw. “Markets expect emergency rate cuts”. Well, f**k ‘em. Don’t do it! Let them squirm and let the bad boys suffer who need to suffer.
The Fed should have focused on its job as regulator, rather than punishing everybody with the blunt instrument of interest rates.
As far as commodity prices goes, W loves the weak dollar, he threw his veto pen in Mount Doom, and he used government spending and demand side economics to get the economy going in his first term. He should have encouraged investment and innovation instead.
They should have tightened a year or two sooner, and there was nothing whatever wrong with the top rate reached.
Other than inverting the yield curve which is the best indicator ever for predicting recessions. The best way to tame inflation is with the supply side growth of the economy, not incorrectly blaming economic growth for inflation and then punishing everybody with higher interest rates.
He only posts when he's been drinking.
I wish Dick Grasso would come up with some nice public zingers for Client #9.
(1) how low to cut the corporate tax rate
(2) how permanent to make all the existing tax cuts set to expire
(3) how to simplify the tax code rapidly
(4) what additional incentives can be given to net new business investment
(5) what regulatory relief can be given over new techs hung up in red tape
(6) what restrictions on energy resources can be lifted yesterday
(7) whether to abolish fuel taxes or only cut them 50%
(8) how many new ships the navy will need over 20 years and how many of them can be laid down in the next 4
(9) how many highly skilled people are standing in line at the doors waiting to get in, who needn't wait
(10) how many low skilled ones are crowding them out and displacing pressured domestic workers, and can wait
(11) what pretend "allies" haven't been doing anything for us lately
(12) how many new planes the AF needs and how many can be ordered right now
(13) how much capital transport infrastructure work can absorb and the worker supply for it released from slumping construction
(14) which financial institutions need to be merged or split yesterday to assign the losses once and for all and get it behind us
(15) how houses can be liquidated rapidly to get prices back to realistic levels and ownership into strong, steady hands
(16) how greater savings and financial risk taking can be encouraged, instead of demonised and punished
(17) how to shut down trial lawyers chasing the financial ambulance
(18) how to obliterate green luddism as a screamer we can't afford
(19) how to expedite approval for hundreds of new energy projects yesterday
(20) to hell with the cost.
But we do not have rational men in command, we have whiners and blame games and socialists and enemies determined to destroy capitalism and sow all the political division they can. And meet them with sophmoric thought, division and political confusion, backbiting and temper tantrums. It is all completely stupid and completely obscene.
Most MBS’s are not dodgy instruments with shaky collateral. There are many on the market because under capitalized holders are being forced to sell.
I hope you are wrong. Whenever nations have been faced with such crises, governments have responded with Socialism, and more Socialism. Germany got Hitler. We got the "New Deal" and a longer Depression than should have ever occurred, ending only because of a World War. And America was well on its way to a Socialist state-in-training. If we get another financial panic plus Obama or Hillary, we will fall for good into a dead-red European-style Socialist state.
Where does this come from exactly? The Chinese bond buyers?
Not you, the high school drop out who you responded to.
Thin air, exactly.
Goldman is doing just fine, unlike those others. No Saudi, Emirate or Chinese cash needed there.
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