CountryBoy
Market Veteran
- Reaction score
- 48
http://www.cnbc.com/id/32585369/
The Fed is cleaning up the old mortgage securities in the market—mostly old residential mortgage loans backed by Fannie Mae and Freddie Mac. But it will soon be on the hook for new ones, too, as troubled commercial mortgages are expected to fail en masse in a crash. The institution has already received $2.3 billion in requests to buy commercial mortgages. Indeed, investors are so eager to dump their commercial mortgage-backed securities on the Fed that they have spurred an outcry against Standard & Poor's, which has said it may tighten its ratings requirements to keep the more problematic loans out of government hands. Put simply, the holders of such securities don't want anything to stand in the way of getting on the federal gravy train.
Both types of assets are creating a shadow boom in unworthy debt, based on the same excessive leverage and questionable financial judgment of the last credit bubble. Plus the Fed is making some of the same mistakes as banks did in 2005-07. The banks forgot they were in the "moving" business-of underwriting mortgage-backed securities—and got into the "storage" business of keeping those securities on their books. That's where the Fed is now. It has not yet articulated an exit strategy to dump up to $800 billion of mortgages from its balance sheet.
And if you thought U.S. banks holding all those sketchy mortgages was a bad idea, wait until you see what happens when the center of our country's money supply is saddled with bad debt. The Fed could bail out the banks; no one can bail the Fed out.
CB
The Fed is cleaning up the old mortgage securities in the market—mostly old residential mortgage loans backed by Fannie Mae and Freddie Mac. But it will soon be on the hook for new ones, too, as troubled commercial mortgages are expected to fail en masse in a crash. The institution has already received $2.3 billion in requests to buy commercial mortgages. Indeed, investors are so eager to dump their commercial mortgage-backed securities on the Fed that they have spurred an outcry against Standard & Poor's, which has said it may tighten its ratings requirements to keep the more problematic loans out of government hands. Put simply, the holders of such securities don't want anything to stand in the way of getting on the federal gravy train.
Both types of assets are creating a shadow boom in unworthy debt, based on the same excessive leverage and questionable financial judgment of the last credit bubble. Plus the Fed is making some of the same mistakes as banks did in 2005-07. The banks forgot they were in the "moving" business-of underwriting mortgage-backed securities—and got into the "storage" business of keeping those securities on their books. That's where the Fed is now. It has not yet articulated an exit strategy to dump up to $800 billion of mortgages from its balance sheet.
And if you thought U.S. banks holding all those sketchy mortgages was a bad idea, wait until you see what happens when the center of our country's money supply is saddled with bad debt. The Fed could bail out the banks; no one can bail the Fed out.
CB
