Posted on 09/01/2009 8:07:49 PM PDT by TigerLikesRooster
Fed Will Now Monetize The Most Recently Issued Agencies
By Tyler Durden
Created 09/01/2009 - 17:53
The Federal Reserve announced earlier a shift in its strategy in purchasing Agency debt, whereby it would purchase almost exclusively the most recently issued Agency paper [1]:
Prior to August 31, 2009, purchases were focused on off-the-run securities in that category. Going forward, purchases will include on-the-run securities in that category. This change represents a technical adjustment designed to mitigate market dislocations and to promote overall market functioning. Over the course of the program, the Federal Reserve may change the scope of purchasable securities.
"Overall market function" is a wonderful euphemism for attaining a sufficiently high stock price for commercial banks so that when the FASB requires off-balance sheet items to be reincorporated on their respective balance sheets at the end of the year, we don't have another massive bank raid once every single emperor's clothes are proven to be non existent as Tier 1 Capital Ratios start collapsing like dominoes, and the Stress test is determined to be a government sponsored fraud.
John Jansen provides the following expansive explanation [2]:
/snip
Zero Hedge has a simpler one: monetization (and after all the Fed is already doing this with Treasuries; did anyone think that Agencies, which as TIC showed recently, are being shunned by all CBs are any different - it was only a matter of time before the Fed tipped its hand in "advising" foreign purchasers that it will now backstop virtually every piece of US-issued paper, even those from the dreaded GSEs).
And lest we forget, the Fed is already facilitating the rotation of MBS and Agencies by foreign CBs into Treasuries. At this rate a $5 trillion Federal Reserve balance sheet by this time next year is looking conservative.
(Excerpt) Read more at zerohedge.com ...
Ping!
I’m having trouble figuring this all out. Are we off to Zimbabwe or will the banks collapse and cause us to party like its 1929. I mean either way we are screwed, but it would be nice to know from what direction it is coming.
getting ready to put expiration dates on the money?
Is China licking their chops looking at Taiwan and thinking that’s what will settle our debt to them? They move in and we turn our backs on Taiwan.
I said over a year ago that was their plan (part of their plan). I was surprised to see one of the comments on the ZH article mention that as well.
18 months ago $24 T or was it $84 T was laughed at.
Didn't we read a couple of months ago that 3/4 of the Treasury auction cusips were the Fed?
And the ferners aren't participating?
yitbos
The Fed is the only one buying. Nothing here to see UNTIL interest rates rise.
" . . . a shift in its strategy in purchasing Agency debt, whereby it would purchase almost exclusively the most recently issued Agency paper . . .
Agency paper = Fannie, Freddie, FHA, etc.
How much T bad paper does just Fannie have?
yitbos
What time was this announced? Is this why the Dow fell like a teflon-coated brick today?
There are several reports I read Sunday about some massive profit taking sell-offs by the big traders.
Baltic Dry Index (International shipping orders) has been dropping like a brick for about 3 weeks. Shanghai Index has been dropping for at least a week. Seems like we are following them.
If we are not lucky, we would get both.
4 am bump!
Federal Reserve Bank of New York
FAQs: Purchasing Direct Obligations of Housing-Related GSEs
"Effective 9/1", so it had to come out sometime before.
yitbos
>I mean either way we are screwed, but it would be nice to know from what direction it is coming.
In the ass? [/sarc][/cynic]
;)
There are also reports of hedges bailing on USD equities.
Remember that recent IMF $250B SDR account? It looks like some CBs are using that instead of $.
yitbos
I think we are in for a real tough time. There are plenty of signs that do not look good at all. It could be that I am looking for the bad signs. I just think it is better to prepare for the worst.
Do you suppose Americans had any glimmer in 1930 that it would be a Depression not a Recession? Did they have any idea how long it would last? Did they get hopeful during the 2-3 Stock Market rallies during the Depression only to lose more money when they did not pull out quick enough? I bet there were plenty in the FDR Admin painting Rosy pictures and saying the recovery was just around the corner...
They had big inside traders back in the ‘30s, but with hedge funds and computerized trading of large blocks of stocks today I have to think it could be worse now.
We are just pawns in this, so I am betting on a bad scenario and trying to prepare for the worst.
Did the Rooskies have a glimmer before their empire collapsed in a couple of years?
yitbos
The Kosharis are in charge.
Insightful! You may be on to something...
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