From the Financial Times, via Mish Shedlock:
Central banks on both sides of the Atlantic are actively engaged in discussions about the feasibility of mass purchases of mortgage-backed securities as a possible solution to the credit crisis.
Such a move would involve the use of public funds to shore up the market in a key financial instrument and restore confidence by ending the current vicious circle of forced sales, falling prices and weakening balance sheets.
The Bank of England appears most enthusiastic to explore the idea. The Federal Reserve is open in principle to the possibility that intervention in the MBS market might be justified in certain scenarios, but only as a last resort. The European Central Bank appears least enthusiastic.
Any move to buy mortgage-backed securities would require government involvement because taxpayers would be assuming credit risk. There is no indication as yet that the US administration would favour such moves. In the eurozone it would require agreement from 15 separate governments.
One argument among policymakers and bankers has been that new international rules have exacerbated the credit squeeze by requiring assets to be valued at their current record lows rather than at face value.
Fed officials are monitoring the impact of the latest barrage of Fed liquidity moves and interest rate cuts. They also believe the US has not exhausted all the options short of wholesale public intervention and further intermediate steps are available to them.
These could include still more aggressive use of the Fed’s own balance sheet to boost liquidity in the markets.
Analysts say the US government also has plenty of scope to boost support for the markets indirectly through the Federal Housing Administration or Fannie Mae and Freddie Mac.
The UK lacks these institutions, which could be one reason why the Bank of England is keenest to explore outright intervention. The UK government has already become heavily involved in buying mortgages since September with the recent nationalisation of Northern Rock, the mortgage lender.
Tim Bond, head of asset allocation at Barclays Capital, said that U.K. policy makers should copy the Fed's program to inject liquidity into financial markets.
``The Bank of England does not provide the same comprehensive liquidity framework that the Fed has just put in place and such as exists already at the ECB,'' Bond told journalists in London on March 20. ``We need them to provide liquidity to any duration. It would deter the raiders.''
The Fed slashed its benchmark lending rate three-quarters of a point to 2.25 percent on March 18 and implemented a program to swap $200 billion in Treasuries for mortgage-backed securities. The ECB loaned 15 billion euros ($23.2 billion) of funds to meet demand for more cash before the Easter weekend.
The Bank of England lowered its benchmark rate a quarter point in February to 5.25 percent, the second cut of that size in three months.
Umm and why wouldn’t We the People use our $2 Trillion worth of guns to fix the problem? The 60 million gun owners could then apologize to the world afterward and create innovation such as ENERGY to regain confidence? Why would we continue using public funds to help out the bankers who created this mess while 90% of the U.S. population’s net worth is erased? Am I going to go on John Kipling the 3rd’s yacht whom is laughing enjoying the economic rape while I am eating government cheese and wheat pasta? No wonder they keep bringing up the 2nd Ammendment.