Government Interference – NOT GOOD!
Gird your loins. The signs are growing that there’s a new Wall Street gold rush under way—for those complex bundles of mortgage loans that fueled banks’ profits between 2005 and 2007. This year, prices for mortgage-backed securities are rocketing as federal stimulus dollars flood the market. But the difference with this “boom” is the center of gravity has shifted: from giddy, cowboy bankers to the Federal Reserve. The Fed is so eager to save banks, create a demand for these securities, and stabilize the housing market that it’s taking troubled loans and mortgages onto its own books. The problem is the Fed may be in well over its head.
Deliquencies expand to 9.24% while mortgage securities increase this year by 40%? Can anybody say, “Stupid!” But that is the government we elected that can run up the price of a worthless asset! What did we expect?
Wow – had not read this before. Not surprising. This market has been government subsidized from the beginning. It was implicitly backed by the government through Freddie/Fannie, then explicitly backed when the government bailed those guys out and bailed out Wall Street. And now the government is in the middle of it, buying all this crap up. What a complete mess this is. I agree the Fed is in over their head. They have the power to debase the dollar in the name of growth and they are doing it. The collapse of the US dollar as the world’s reserve currency will be the economic story of the first quarter of this century, in my view. When that day comes, we will have lost our superpower status. Nothing else can take it away, save that, in my mind.