Want to get freaky? Well, one thing the Fed could do, at least in theory, is become a mortgage lender in its own right, most likely by refinancing existing mortgages at lower rates. A more plausible "radical idea" would be for Congress and/or the federal regulators to raise the limits on the mortgages that can be held by Freddie Mac and Fannie Mae, and encourage them to buy busted mortgages. (If that works like, say, Medicare Part D, the prescription drug benefit, they'd even forbid Freddie and Fannie from buying bad loans at a discount!) Then, as those loans go bad, the Fed would bail out Freddie and Fannie.
Look at what Bernanke just proposed. And note the reaction of Sen. Chuck Schumer, who in addition to supporting torture is a shill for the banks. Hey, what's a senator from New York for? The money quote:
In response to a question from Committee Chairman Sen. Charles Schumer, D-N.Y., Bernanke suggested that mortgages eligible for government guarantees be capped at $1 million. "I think that's a very good idea,” Schumer said of the guarantees. “In fact, legislatively, it's something that I would try to introduce and get passed.”
What can I say? I love being right. Oh, one more thing. Bernanke's proposal is a sign that the banks are scared. The latest mantra is that this will be the size of another S&L bailout. Folks, you heard it here first: It's going to be a lot bigger than that.
5 comments:
"Bernanke suggested that mortgages eligible for government guarantees be capped at $1 million."
You and I both know that a proposal like this will do little, if any, to stop the financial meltdown from happening. Will Fannie and Freddy be able to offer teaser rates? Or loans at 110% loan-to-value? Or negative amortization/Option-ARM loans? Or stated income (liar) loans with high loan-to-value allowances? If not, then this proposal to raise the loan ceiling to $1M and have the taxpayers provide investors an explicit guarantee of repayment is all for show...burning taxpayer money to make it look like the politicians are "doing something".
- arroyogrande
It's not about helping the borrowers. Screw them. It's about bailing out the holders of bonds backed by non-performing loans. If you think that the Fed or anyone else in power gives a rat's ass about keeping people in their houses, think again. This is about the money, and only the money.
I think it's an open question as to whether a bailout of the bondholders can work. Up to $500 billion or so, it probably can. After that, all bets are off.
The fix has been in for a month or so. The Federal Home Loan Bank's balance sheet has exploded with loans to contributing banks. The FHLB is a direct gov't sponsored agency, not like Fannie and Freddie who have implicit affiliations.
The problem is, "Money Center" banks have over extended themselves and they are scurrying like trapped vermen to get out of their situation. The assets they thought they sold to investors are coming back to haunt them. Not good for the bank's balance sheets.
Interesting! Do you have any links to where I can find the numbers?
http://www.fhlb-of.com/analysis/pressframedyn.html?source=2007q3cfr-111407.pdf
1st paragraph labelled "Balance Sheet Highlights" corroborates your thesis OP. The FHLB balance sheet will probably grow in Q4 too.
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