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Guest Post: Why Is the White House Against Freezing Foreclosures? A Look At The Fed's Suddenly Worthless Trillions In MBS Holdings

Tyler Durden's picture


Submitted by Nomi Prins, first posted on AlterNet

Why Is the White House Against Freezing Foreclosures in the Face of Rampant Fraud?

At first, there was a deafening silence from Treasury Secretary Tim
Geithner and Fed Chairman Ben Bernanke on the foreclosure front. It was
as if they: 1) didn’t read the news; or 2) were afraid someone would
notice afresh their incompetence in dealing with the ongoing housing
crisis and deteriorating economy, while convincing everyone that the
bank bailouts and subsidizations were good for us.

Last week, while Senator Harry Reid, House Speaker Nancy Pelosi
and others in Congress were dispensing irate pre-election sound-bites,
attorneys general across the country were gearing up for investigations.
Banks were reluctantly announcing foreclosure moratoriums because it’s
quarterly earnings season and uncertainty is bad for stock prices, and
Geithner was defending TARP
and mixing it up with China over the dollar. Meanwhile, the Fed was
gearing up to buy more Treasuries, like some kind of rapacious alien
that eats its progeny, because no one else wants our debt.

that changed when Geithner came out of hiding yesterday with a stance.
(Bernanke is still in hiding, but will support Geithner’s view soon.)
Unsurprisingly, Geithner chose to side with the likes of conservatives
and CNBC. Thus, his response to Charlie Rose when asked whether he
supported banks in declaring a foreclosure moratorium was: “No, I
wouldn’t say it that way.”

Why? Geithner’s logic follows the
pattern, coupled with old-style fear-mongering: if you wait and analyze
what’s really going on, it might be bad for the housing recovery. And,
what housing recovery is that? The one in which 25-30 percent of homes
being sold are REOs (bank owned real-estate, a.k.a. foreclosed
properties). On a trading floor, that’d be considered "churning," not
new value.

The free-market, let the banks do what they do
mentality was what allowed them to create a $14 trillion mountain of
securities backed by precarious mortgages to begin with. Don’t look at
what they’re doing, that might hurt the boom. Don’t ask them for
anything in return for bailouts -- that might clog the system. Don’t
stop them from churning foreclosed properties -- that might stop the

But the real reason for Geithner’s reluctance about a
foreclosure moratorium is that he’s scared stiff about those securities –
because even if he won’t admit it, he knows that the bailout wasn’t
just about TARP and Bernanke isn’t just an economic savior.

The government owns or is backing trillions of dollars worth of assets predicated
on the same or similar suspicious loans that defaulted during the 2008
crisis period, which they did nothing to stop (or force banks to

Instead, the Fed now owns nearly $1.5 trillion of
toxic assets that have no bid (meaning no one but the Fed wants them).
They would have less of a bid if there was even more uncertainty about
the loans that fill them. The Treasury is directly backing $400 billion
of government-sponsored entity (GSE) securities, and is indirectly
backing another $6.8 trillion. If foreclosed homes couldn’t be sold
because of fraudulent paperwork or had to wait for more detailed
inspections, you can imagine how difficult selling assets stuffed with
faulty loans might be. If it’s tough to find a title for a foreclosed
home, think how tough it is to back the related loan out of a pyramid of
securities sitting on top of it.

See, the loan that might be analyzed in a foreclosure situation could
be part of a chain connecting the underlying home to 20 or 50 different
securitized assets, all depending on it for either the interest
payments the loan was supposed to provide, or the value of the
foreclosure property if those payments stopped (in Wall Street speak,
the "recovery value"). If a foreclosed property isn’t selling, it’s not
recovering any money back to any asset waiting for it. Think what that
can do to the value of toxic assets living at the Fed and the Treasury
Department. Kill it.

The reason TARP and all the other subsidies
happened was that Hank Paulson, Ben Bernanke, Tim Geithner (the pillage
gang) and the most powerful Wall Street CEOs were scared. Banks had
stopped trusting each other (no one cared about the person who couldn’t
pay their mortgage, or had their home taken, whatever the reason). When
there is no confidence in the market, there is no bid for securities, no
matter what the reason.

The banks couldn’t pay for all their leverage and they
were facing bankruptcy if the system remained seized up. So the gang
paid to keep the securitization market going, by finding a home or
back-up home for the assets. They did not propose any remotely effective
plan to help individuals at the loan level (a far cheaper solution, as I
outlined in It Takes a Pillage).
They merely enabled the worst practices and excesses to keep going in
the name of saving the country from a greater depression, by shifting
them to Washington and providing the illusion of demand for them.

fraud is not new. Many sane people and organizations have been talking
about fraud for years -- you don’t manufacture $14 trillion worth of
mortgage-backed securities and all their permutations and mega leverage
out of $1.4 trillion worth of subprime loans in five years without
cutting a lot of corners. Banks knew that. But when the value of their
assets plummeted, unlike individual borrowers, they got to dump them on
the Fed and the Treasury department, while receiving cash injections and
guarantees, and cheap money subsidies in return.

stance is a sad reminder of how much things have resumed to business as
usual. Back while he was campaigning for votes, President Barack Obama
advocated a foreclosure moratorium, as did Senator John McCain. That
notion of halting the ejection of people from their homes seems so –
election 2008. When he first won the presidency, Obama continued to
advocate for a 90-day moratorium. But, that’s when things were still bad
for the banks and the markets. That was before profits, and bonuses and
stock prices came chugging back, along with bank power.

The Bank
of America didn’t quiver in its federally subsidized boots because Harry
Reid asked (not even demanded, because really, he can’t), for a
moratorium on foreclosures last week. It capitulated because it owns a
bunch of REO properties it wants to dump (and lawsuits are generally
time-consuming and messy). It’s not alone. JPM Chase’s REO portfolio
last quarter was double in size vs. its earlier quarter and nearly 30
times what it was last year. Wells Fargo’s REO portfolio also nearly
doubled, and Citigroup’s REO pool last quarter was up 81 percent over
the prior year. The GSEs, Fannie Mae and Freddie Mac are sitting on a
record number of REOs on their books they haven’t been able to sell.

Selling REOs to hedge, private equity and asset management funds in
bulk is the hot new business. (Small now, but so were CDOs when I first
warned about them in my 2004 book, Other People's Money.) Banks
aren’t being nice to those deadbeat borrowers who were too dumb to
foresee a housing and financial market collapse due to the overzealous
fee-seeking attitudes of securitizing and trading banks. No, having
gotten a multi-trillion dollar federal life raft, the big banks are
prudently trying to salvage a growing business.

Geithner and Bernanke are helping them, desperately trying to maintain
the illusion of recovery and the narrative that their previous efforts
worked, amidst the stockpile of crap they own and the slew of ongoing
loan-level problems they will steadfastly do nothing to address.


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Thu, 10/14/2010 - 15:51 | 650444 Gully Foyle
Gully Foyle's picture

Because it is BEFORE the election.

Give it a month.

Thu, 10/14/2010 - 16:03 | 650512 midtowng
midtowng's picture

Washington will do nothing about this before January, and by that time the full effects will be on us.

I had forgotten that the Fed owns $1.5 Trillion of this shit (and counting).

Fri, 10/15/2010 - 00:15 | 651847 djrichard
djrichard's picture

I had forgotten that the Fed owns $1.5 Trillion of this shit (and counting).

Yes, can you imagine the anguish after they risked $1.5T of their hard earned money on this "shit".  It must have taken them forever to collect that $1.5T after loaning it out after they created it out of thin air.  Or if they were impatient, they may have just cut to the chase and loaned it to themselves (after printing it) - but still, I'm sure we can all feel their pain.

To the Fed, "this shit" is worth more than the $1.5T they created out of thin air.  They swapped paper notes for assets.  How can they lose?  They could care less about pushing it back on the banks, unless there's a better swap to be made down the road with that play. [Edit: At the end of the day, the Fed doesn't want its counterfeit issue back.  It wants the assets that were collatoralized against its counterfeit issue.]

Otherwise, they'll play us taxpayers for stupid rubes as usual and add any "losses" they incur on the assets as increased debts we need to work off.  To compensate them for all the risks they took you see.  What a sick joke they perpetrate on us.

Thu, 10/14/2010 - 16:06 | 650524 1100-TACTICAL-12
1100-TACTICAL-12's picture

Squatters on the DR show...

Thu, 10/14/2010 - 15:52 | 650447 Reishi-self
Reishi-self's picture


By: Edward Thomas, Executor of the


h/t to David Clarence



Thu, 10/14/2010 - 15:52 | 650449 NOTW777
NOTW777's picture

its election time

Thu, 10/14/2010 - 15:53 | 650454 Sophist Economicus
Sophist Economicus's picture

They aren't worthless!  

Many Danielle, Jims and their baseball team sized families will have $1,000,000 home to live in now, along with the $300K worth of furnishings/other neat stuff...You cannot put a price tag on the look of joy on those 11 smiling faces

This is the stuff dreams are made of....


Thanks Uncle Bennie

Thu, 10/14/2010 - 16:22 | 650597 uno
uno's picture

Very well worded.

Thu, 10/14/2010 - 23:46 | 651816 Pants McPants
Pants McPants's picture


Thu, 10/14/2010 - 16:05 | 650455 Bob
Bob's picture

Sounds like the Private Fed's argument that they must be "above the reach of politics" should now be honored . . . too bad it's not in their interests and against everyone else's this time. 

As for the toxic mortgages at the GSE's, according to Ratigan and others many of these were "purchased" by the GSE's from the banksters on the condition that they were "conforming" assets.  Since cursory examination will reveal that they don't conform to the basic conditions under which they were aquired, they should be returned to those banks. 

As ye sow shit, so shall ye eat.  It's time for the banks to gorge themselves, however unhappily, upon the toxic shit they created. 

Thu, 10/14/2010 - 16:22 | 650575 FEDbuster
FEDbuster's picture

The banksters turned the FED into a ginormous zombie, cesspool bank.  Since member banks own and control the FED this wasn't hard to do.  The FED controls the government, so they demanded (ordered) the Treasury to back stop all the crap that was dumped on them.  In the meantime they pulled a couple of trillion out of their ass to give to member banks, so that the year end bounus pools would remain full.  Now they are trying to convert crappy MBS into questionable T-bonds.  The FED will NEVER turn on their owners (member banks) who dumped the crap on them in the first place. 

The first rule of plumbing is "shit flows downhill",  the hill looks like this: Banksters on top, FED below them, Federal government below them, State governments below them, citizens are at the bottom of the hill working hard to keep from drowning in the shit.

Headline at Yahoo, nuff said:

Wall St blames homeowners in foreclosure fiasco

Thu, 10/14/2010 - 16:28 | 650634 Bob
Bob's picture

Let them throw all the shit they've got and we'll see whose Wall it sticks to. 

Thu, 10/14/2010 - 16:54 | 650709 Miles Kendig
Miles Kendig's picture

Of course.  All dope dealers say they wouldn't be in the business if there weren't addicts.  Only in this case it's an addiction to an ownership, strike that, a debt society since even the banks cannot prove ownership under the weight of their, and governing societies epic ineptitude.

Thu, 10/14/2010 - 17:45 | 650865 Goldilocks
Goldilocks's picture

... gorge themselves ... upon the toxic shit they created.

Wishful thinking, but that was never the plan. We can sure hope though. In the meantime vote for it by buying gold … make the bankers bleed out their ‘real’ assets.


Thu, 10/14/2010 - 18:13 | 650933 FEDbuster
FEDbuster's picture

"It's time for the banks to gorge themselves, however unhappily, upon the toxic shit they created"

It's just a wafer thin MBS.....

Thu, 10/14/2010 - 18:42 | 651026 Bob
Bob's picture

An elegantly apt depiction!

Thu, 10/14/2010 - 15:53 | 650456 frankTHE COIN
frankTHE COIN's picture

I once worked for 3 Wall St firms that blew up and went under. Refco being one of them. I feel like that guy in the Snoopy cartoon with the rainy clouds always over his head.

Next stop, i'm going to apply as an intern at the FED.

Thu, 10/14/2010 - 16:37 | 650684 Apocalicious
Apocalicious's picture

I feel like a mere piker with only 2 defunct clown-shops on my resume. Hail to thee, frank!

Thu, 10/14/2010 - 15:54 | 650465 Silver-Is-Better
Silver-Is-Better's picture

Is there not anyone in this administration with even half a brain?

Thu, 10/14/2010 - 15:57 | 650479 Sophist Economicus
Sophist Economicus's picture

No!   But there are rumors of a head with a fully developed Medulla roaming the halls of the white house

Thu, 10/14/2010 - 18:36 | 651009 Winston Smith 2009
Winston Smith 2009's picture

No, they rent their brains from the people who finance their reelection.

Thu, 10/14/2010 - 15:56 | 650474 wiskeyrunner
wiskeyrunner's picture

Stock index futures will rise tonight.....MAKE FREE MONEY....BUY THE CLOSE SELL THE OPEN....I think Google reports that should be good for 100 Dow points overnight.

Thu, 10/14/2010 - 15:56 | 650475 Cammy Le Flage
Cammy Le Flage's picture

The "number of foreclosures filed by month" being reported are dead wrong.  100,000 countrywide last month.  LIE.

Look, Miami-Dade County Clerk of Courts has a page for foreclosure filing nos.  Lots of Clerks of Courts do.   Miami lists the nos since is the page   3,206 were filed last month in Miami-Dade County alone.  There are 67 counties in Florida.....let's not forget CA, AZ, NV, etc.   100,000/month?  I cry b.s.   Let's just assume 1,000/month are being filed in each county in Florida.  That is 67,000.   Why is no one reporting the nos. lies??????
Thu, 10/14/2010 - 23:31 | 651778 RockyRacoon
RockyRacoon's picture

There are some really desolate and empty counties in Florida.  They are not all like Dade County!  But your numbers are still probably not arguable nationwide.

Thu, 10/14/2010 - 15:57 | 650480 Turd Ferguson
Turd Ferguson's picture

Now THAT is an impressive. late-day ramp job.

Seems no one...and I mean no one...wants to be short ahead of two straight POMO days!

Thu, 10/14/2010 - 16:03 | 650482 Mako
Mako's picture

I fail to see why anything should stop.  That is what the court is for and process. 

The issue of "standing" or lack of can easily be addressed by the homeowner in the correct forum. 

The law is a severe, severable, separable and prejudicial force.

Thu, 10/14/2010 - 15:57 | 650484 John McCloy
John McCloy's picture

  Think we may have finally reached the point where the Fed is now near powerless to prevent what is coming. States rights will allow for the moratorium and the Fed is powerless to prevent that even as they try to quell the panic by intervening in the stock market but when it is determined that the Fed cannot prevent a housing collapse the markets will crash and we have ball game. Just look at the attempts today to keep the market cool ..not gonna work for too much longer. 

It is too lucrative to short and entirely too risky to stay long.Meanwhile Liberty tries to spin the plates with a close green god bless them.

Thu, 10/14/2010 - 16:11 | 650543 DonutBoy
DonutBoy's picture


Thu, 10/14/2010 - 16:24 | 650610 mikla
mikla's picture


Thu, 10/14/2010 - 16:27 | 650625 MachoMan
MachoMan's picture

states rights do not allow for a blanket moratorium...  they have to narrowly tailor the law so as to allow those persons with the proper paperwork in order to foreclose.  Essentially, these laws are already on the books...

It's called "we want to draw attention away from the fact that we have no ability nor desire to actively police these instruments and are generally completely inept and hold ceremonial positions within the state."

Thu, 10/14/2010 - 16:48 | 650740 MuadDib
MuadDib's picture

It's not just the Fed that is loaded with toxic garbage, so too is the Federal govt in addition to the backstops and gurantees through the FDIC and the GSEs.

What we have here is a scenario for hyperinflation -- a total loss of faith in the currency.

The market could easily *skyrocket* in nominal terms, if Zimbabwe is any example.  Afterall, all of the money in US paper will have to flow somewhere.  Gold and silver to infinity in nominal terms and significantly higher in real terms.

Thu, 10/14/2010 - 17:12 | 650781 B9K9
B9K9's picture


A deflationary collapse was always the predictable outcome. There are just too many structural impediments - state's rights being one of them - to solve these broad issues at a federal level.

Ben, Timmy, Hank, the whole lot of them, knew the only possible way out was to re-blow another bubble, anywhere and at almost any price before this shit pile caught up with everyone. The intention was always targeted at rolling the paper to cover up the sins of the past.

They had their two years to pull off a miracle - it's all over. The recent jaw boning about QE2 is nothing more than crazy mumblngs, similar to Hitler ordering out 'phantom divisions' during his final days in the bunker.

Fri, 10/15/2010 - 14:02 | 653455 MachoMan
MachoMan's picture

You're far too generous, the FED never had the tools/capacity to fix the problem...  and its/treasury's efforts to do so were nothing less than golden parachutes for the principal actors of this whole mess.

Thu, 10/14/2010 - 15:58 | 650486 Duuude
Duuude's picture



Aaaaand the FDIC was gonna pay them



"Don't go thinking that banks are getting the short end of the stick on this deal.  It is, as always, the little guy, and, of course, his next door neighbor who just lost $150,000 in equity because of the low price fever confronting the real estate market in many states. Unfortuneately, we do not know at this time which banks have Shared Loss Agreements in place with the FDIC. We do know the profits realized by OneWest is only the tip of the iceberg. Your local 'big bank' will celebrate behind closed doors as 'we the people' continue to give them our money! Who do you think the banks are that hold the other 93%?"



Thu, 10/14/2010 - 15:58 | 650487 Dr. No
Dr. No's picture

Thats one way to shrink the balance sheet.  If Bernake doesnt want to do it, the market will!!

Thu, 10/14/2010 - 16:21 | 650590 csmith
csmith's picture

Bennie has $1.5T in MBS (@par) and $55B in equity. Therefore a 3.7% haircut wipes out the equity line.


Thu, 10/14/2010 - 15:58 | 650489 Turd Ferguson
Turd Ferguson's picture

Two minutes to go. Down down 9. Can they make it? Brian Williams desperately wants to report that "on Wall Street today, stocks closed slightly higher".

Thu, 10/14/2010 - 15:59 | 650494 LibertyIn2010
LibertyIn2010's picture

How about we give them a taste of their own medicine?  Let's give them the ol' Dick Fuld treatment. 

Sorry, Ben, but we're not going to save the Fed.  Instead, we're going to break it up and sell it off for whatever it's worth on the open market. 

Payback, bitchez! 

Thu, 10/14/2010 - 16:08 | 650535 Bob
Bob's picture

No more free lunch. 

Fri, 10/15/2010 - 14:07 | 653480 MachoMan
MachoMan's picture

we're going to break it up and sell it off for whatever it's worth on the open market.

Fail.  Go to the back of the class.  The "market" clearing price for these assets will be literally nothing, but given the volume, the only persons with enough wherewithal to foot the tab are either other sovereigns (who would be left standing?) or the principal actors of this mess (the beneficiaries of the wealth gap).  Remember, they'll be sold en masse, behind closed doors...  think what happens to the sale of banks...  if you sold each individual security on its own, you might get a vastly higher price...  but that's not efficient, hence giant haircuts and the introduction of the possibility for profit/fiefdom.

This was baked in from the start...  we bought it hook line and sinker.

Thu, 10/14/2010 - 15:59 | 650495 Ragnarok
Ragnarok's picture

The free-market, let the banks do what they do mentality was what allowed them to create a $14 trillion mountain of securities backed by precarious mortgages to begin with.


NO, corruption did.

Thu, 10/14/2010 - 23:53 | 651833 Pants McPants
Pants McPants's picture

Yes.  The distinction between a free market and corruption cannot be repeated often enough.


Sadly the overwhelming majority have been taught to lump the two together.

Fri, 10/15/2010 - 14:09 | 653494 MachoMan
MachoMan's picture

just spitballing here, but maybe it's because the inevitable conclusion of representative democracy + mixed capitalism is farcism.  In other words, it's not necessarily very presumptuous.

Thu, 10/14/2010 - 16:00 | 650500 Dr. No
Dr. No's picture

Come to think about it, the MBS will be like the FEDs gold.  Perminatly valued (i.e. $42.xx/oz) and unaudited.  Perhaps they will lease out the MBSes?

Thu, 10/14/2010 - 16:17 | 650567 VegasBD
VegasBD's picture

HA! Love it.

Thu, 10/14/2010 - 16:01 | 650503 Raptor.Handler
Raptor.Handler's picture

What a convoluted mess.

Thu, 10/14/2010 - 16:01 | 650507 Turd Ferguson
Turd Ferguson's picture

So close... -2.19

Heads should roll on this one. How could this be allowed????

Oops spoke too soon -1.89

Thu, 10/14/2010 - 16:04 | 650517 HelluvaEngineer
HelluvaEngineer's picture

No one even cares how obvious the invisible hand is now...

Thu, 10/14/2010 - 18:10 | 650931 Cognitive Dissonance
Cognitive Dissonance's picture

Which is a sign of either arrogance or desperation.

Thu, 10/14/2010 - 18:52 | 651052 deadhead
deadhead's picture

It's desperation, my good friend CD!


It is desperation.  I think I see small beads of perspiration beginning to form as the arrogance wanes and the panic takes hold, once again.

The Fed has threatened to use Paulson's bazooka yet again and at this point in time has painted itself into a corner for the Nov 2/3 coffee klatch.  They will fire it, in my view, and then find that the arsenal is bare.


Thu, 10/14/2010 - 19:29 | 651167 Rainman
Rainman's picture

DH, I've felt all along the equity market is being propped to help keep the same band of incumbent Critters in office. Now there are just 12 trading days left til election......11 if they shut down for All Saint's Day....snark.

If the Fed and Uncle Sugar game is the only one getting played, who wouldn't want the same team going into the second inning of TARP ?? The incumbent critters have no life raft to hold onto but at least they don't have a crashing market to explain.

This is all smelling like Elections 08.....chaos time......only this time the boyz are happy with all that " change " they bought. It's right for the times. Who wants to indoctrinate/payoff new playerz, some of whom may be way off reservation ?? This is about survival.

Thu, 10/14/2010 - 19:51 | 651236 deadhead
deadhead's picture

Hey rain....

it's all about the Fed and they never run for office.


the Fed deserves the biggest blame for destroying this country and their current actions are irresponsible and reprehensible.


for 2011, who's gonna lay off more employees, Cali or NY, lol!!

Thu, 10/14/2010 - 20:50 | 651414 Cognitive Dissonance
Cognitive Dissonance's picture


It's really good to see you haunting ZH this evening. Thanks for dropping by and showing the newbies what an original ZH veteran looks like.

BTW did you get my e-mail from a few weeks back with MsCreants ode to Deadhead?

Either way, please stop by often.

Thu, 10/14/2010 - 21:08 | 651463 deadhead
deadhead's picture

Hey CD...just read it.  got a great chuckle!!


Hoping to find time to post some more....


boy, i'm sure gonna miss Larry Summers, lol!

Thu, 10/14/2010 - 21:26 | 651521 Cognitive Dissonance
Cognitive Dissonance's picture

The most important part of the ode to Deadhead is for you to know that you're loved and missed here on ZH. It's really amazing how strong the bonds are that formed between the early adopters during the initial period of ZH's development.  

Thu, 10/14/2010 - 23:46 | 651813 RockyRacoon
RockyRacoon's picture

I'll add my sentiments to yours concerning Deadhead.  Maybe it's me, but the place seems a bit calmer.  The junking has subsided to a dull roar.

Thu, 10/14/2010 - 16:03 | 650513 wiskeyrunner
wiskeyrunner's picture

Oh look Google is up 5.02% and the index futures are ripping higher hahahahahaha

Thu, 10/14/2010 - 16:04 | 650519 firstdivision
firstdivision's picture

GOOG is looking to hit 10% in after hours.

Thu, 10/14/2010 - 16:12 | 650548 goldmiddelfinger
goldmiddelfinger's picture

the XLF won't be joining

Thu, 10/14/2010 - 16:19 | 650579 plocequ1
plocequ1's picture

I am so glad I hold Google. I would hate to be short tomorrow. Goog, Appl, PCLN and Gold. I am in the lap of luxury.

Thu, 10/14/2010 - 16:23 | 650605 Clark_Griswold ...
Clark_Griswold Hedge Mnger's picture

with pomo friday and pomo monday, i snatched up a few options mid day.

if uncle bennie wants to hand out free devalued bills from the taxes i pay, might as well get a few back

Thu, 10/14/2010 - 16:11 | 650541 williambanzai7
williambanzai7's picture

Thu, 10/14/2010 - 16:27 | 650630 TuesdayBen
TuesdayBen's picture

Can ya make his ears tiny and protruding?

Thu, 10/14/2010 - 16:30 | 650647 williambanzai7
williambanzai7's picture

Of course!

Thu, 10/14/2010 - 17:25 | 650803 Miss Expectations
Miss Expectations's picture

Vampire next?

Thu, 10/14/2010 - 19:41 | 651202 aheady
aheady's picture


Thu, 10/14/2010 - 16:12 | 650544 MuadDib
MuadDib's picture

"Instead, the Fed now owns nearly $1.5 trillion of toxic assets that have no bid (meaning no one but the Fed wants them). They would have less of a bid if there was even more uncertainty about the loans that fill them. The Treasury is directly backing $400 billion of government-sponsored entity (GSE) securities, and is indirectly backing another $6.8 trillion."

And *that* is precisely why the USD is doomed.  There is no way out now.  They will have to print to infinity no matter what.  I'm no Lyndon Larouche fan, but he did say something incredibly insightful in 2008, just before TARP passed -- he said that the bailout was "intrinsically hyperinflationary."  And now you know why.

Fri, 10/15/2010 - 14:20 | 653529 MachoMan
MachoMan's picture

Insightful if you have one eye shut...  The policy doesn't make it hyperinflationary...  hyperinflation was already baked in.  Either they do nothing and we default, which causes hyperinflation or they keep their foot on the gas pedal, causing "lack of faith", which leads to hyperinflation... 

Don't get me wrong, it's a spectacular thing to say because "he'll be proven right".  But, it wasn't really much of a prediction...  and doesn't acknowledge that: (a) policy was impotent all along to deal with a contraction of credit this large and (b) that hyperinflation is the intrinsic outcome of our previous credit expansion, regardless of any subsequent policy.

Thu, 10/14/2010 - 16:21 | 650588 wiskeyrunner
wiskeyrunner's picture

Blue sky nothing but blue sky. I never read the articles on this site, they depress me.

Thu, 10/14/2010 - 16:24 | 650606 InconvenientCou...
InconvenientCounterParty's picture

While you are busy scanning the skies for that black swan, you might not notice that the social fabric under your feet has been disolved by "moral hazard".

supersize that law firm, bichez.


Thu, 10/14/2010 - 18:43 | 651027 Winston Smith 2009
Winston Smith 2009's picture

I never thought I'd be saying this, but there may be a lawyer shortage in this country once the lawsuits from this start flying.  I think I'll look into paralegal temp work.  I'd gladly come out of retirement at meager pay to (legally) screw the f**k out of the TBTF bastards who got us here and who probably still think they're going to get away with it.

Thu, 10/14/2010 - 16:26 | 650619 DudleyDoRight
DudleyDoRight's picture

Think bank bonuses are too high...move the toxic assets back on to the banks' balance sheets

Thu, 10/14/2010 - 16:27 | 650621 John McCloy
John McCloy's picture

SSo as we all feared the Fed has bankrupted us by siding with elites and the bankers who caused this mess instead of teaching them a lesson that would not be forgotten. So they stepped in and loaded up their balance sheet with assets they had no right buying so banks could buy stocks and pay themselves ridiculous sums of money while walking around with a new sense of immunity. Nobody has been placed in prison and here these pieces of trash are once again begging for QE2 on our dollar because the first round of QE, dollar debasement and ZIRP along with fictional accounting was not enough? 

  So who is going to bailout the Fed and what right do they have to play with our money and futures and the sacrifice of all the veterans who died to secure those liberties from tyranny? I assume they will say it was in our own best interest.

   Well on the Tombstone of Liberty it will read, "It was for the greater good of society"

My question is this, can the Federal Reserve even risk a sound round of QE2  of those assets become even more worthless? 


Thu, 10/14/2010 - 16:30 | 650645 MachoMan
MachoMan's picture

the fed will be liquidated just like the rest of the nonperforming assets...  it will be placed with all the blame for the whole fiasco and it will be sacrificed to the hungry masses...  the problem is, we're busy staring at the magician's assistant's tits instead of his hands..  the real magic act is coming when the liquidations occur...  who picks up the assets and at what price?  (think what is to be done with the wealth gap).

Thu, 10/14/2010 - 16:41 | 650702 MuadDib
MuadDib's picture

The US govt will have to be "liquidated" along with the Fed.  Think of the trillions in backstops and guarantees the US govt is on the hook for, through at least the FDIC and Fannie and Freddie.

This is the mechanism for hyperinflation--and it was set in 2008. 

Thu, 10/14/2010 - 16:53 | 650735 John McCloy
John McCloy's picture

  Well we are hopefully going to reach a time in our nation where we elect politicians who say that we are defaulting or giving haircuts on our debt since it was a perpetrated via a coup of elites in league with foreign interests and allowing them to interfere in domestic policy which is a strict violation of the Logan Act. 

   The Fed would be stripped of power and we would close off the U.S. to foreign trade if other nations do not want to participate after the US going this route and begin to focus solely on manufacturing and consuming amongst ourselves. Fractional Reserve lending would be limited to 2-1, currency would be backed by gold and silver and fully redeemable for physical. If CEOS want to pay themselves whatever insanse sums of money than that is acceptable but from this moment forward not one cent will ever be given of governmental money or subsidies to any of these entities. All Federal Income Tax and investment tax will be limited to 1% personally for defense spending and 0% investment tax. Smaller government = lower costs.

All foreign bases closed and troops returned stateside with all spending going toward defense of the United States solely. 

   Hopefully in 50 years our dollar would be so valuable after losing the reserve currency we could return to that status once again by working overtime to make our dollar valuable as opposed to the opposite. A Strong currency = productivity and hardwork backed by a nation that makes incredibly quality and desired goods and backed by unlimited freedoms. 

   The only debt spending we should ever consider is for national disasters which is why we save for rainy days to protect our fellow states when disaster strikes. 

Thu, 10/14/2010 - 17:16 | 650784 JLee2027
JLee2027's picture

Amen. Close the IRS, replace income tax with a VAT tax. Secure the borders, finish the fence, etc.

Thu, 10/14/2010 - 17:57 | 650890 puckles
puckles's picture

If we close off all foreign trade, what on earth do we do for light sweet crude?  We're not pumping enough of the stuff any more, and there's no way enough retrofits for NCG, and their filling stations, can be made in time to prevent complete collapse of the over the road transportation system, which is how we still get the bulk of our food, among other things.  While I admire the basis of your thoughts, they are for now utterly unpracticable.

Oil fuels what remains of manufacturing here, as it does everywhere.

Thu, 10/14/2010 - 18:10 | 650929 John McCloy
John McCloy's picture

  Most people are not going to like this answer but I will say it. 

First of I believe since we are the largest consumers of oil OPEC will still choose to trade with us. I simply said if nations strategically do not want to commit to trading with us because of our debt default than so be it but this would have minimal impact on the Arab states. 

  Also Peak Oil is a hype because there is nothing preventing domestic spending from going toward Geothermal, nat gas and nuclear energy. The corporate interests long ago were frightened by the prospects of nuclear energy because it reduced the value of their oil and they need to proliferate the need for their energy source for as long as possible but look at the technological advancements we have made in only 100 years as a globe. The stagnation in aviation advancement is due to the oil consumption by the airline industry. There are many interests foreign and domestic that do not want a nation turning to alternative energies. Oil is archaic but it does have necessary utility as a lubricant. 

    Most home can become self sufficient upon solar and geo thermal and nuclear energy alone can power the entire nation and that is simply a fact. The corporates need to perpetrate the necessity of oil for as long as capable so they can position themselves on the other side via alternatives. Worst case offshore and onshore drilling. The rest of the world needs out consumption.

Thu, 10/14/2010 - 18:41 | 651023 Bam_Man
Bam_Man's picture

But when all those musicians and actors told us "No Nukes" back in the 70's, we listened.

This is what happens when a nation of imbeciles lets musicians and actors define national energy policy.

Here is your bicycle.

Thu, 10/14/2010 - 19:43 | 651213 John McCloy
John McCloy's picture

You are right sir. Nuclear energy much like a gun or a spoon can be wielded as a weapon. Nuclear energy is the greatest discovery of our time and renders all other energy sources near obsolete. Only the fear of it's misuse keeps it at bay and purposefully. If we ever ran out of oil you would be amazed at the solutions which would manifest out of thin air. Right now oil is worth tons and will be worth even more if they can keep up the charade.
Remember the goal of the globalists is to deindustrialize an make us more reliant upon them. Geothermal and solar energy does not sit well with them.
The Sean Penns of the world should stick to their entertainment and keep their small brains and unchanging opinions out of big boys land. This is about our survival as not only a species but as a free species unruled by the hoarders.

Thu, 10/14/2010 - 23:06 | 651739 hardcleareye
hardcleareye's picture

I like the way you think but...  you need to look a little harder into the "details" for bringing nuclear, solar and  geo. alternatives on line.  If you did this slowly (10-15 years) it "might" work, but I fear that a sudden shut off of the oil tit will in reality crash our electric grid, seriously damaging what industry we have left, and electric grid integrity is a must to "boot strap" our way out.  Where is the money coming from to invest into these other non oil energy sources?  And you forget the Arabs now have another large market... China and Asia, if we are no longer a customer they will bleed but not hemorrhage.

Fri, 10/15/2010 - 00:00 | 651844 RockyRacoon
RockyRacoon's picture

Thanks to all you folks above and your contributions to the discussion.  I'm really interested in geothermal.  Can't understand why it can't be a nice substitute for some of the more polluting alternatives. 

And, hardcleareye, I think we've seen that nothing changes until the status quo hits a very hard brick wall.  Change doesn't happen until there is no alternative.  I think that is what McCloy is getting at.  No reason not to simply hurry the process.

Fri, 10/15/2010 - 18:14 | 654202 John McCloy
John McCloy's picture

GeoThermal is rocking Rocky. A friend of mine was the realtor for a new construction 6 story in the meatpacking district. Entirely Geothermal however the cost was about 120k  for the drilling. This was a tremendous incentive though to purchasers and those looking to lease because of the reduced costs. I actually leased a space to a female Goldman commodity analyst making 400K base 550k bonus compensation. Ironic huh? We discussed HTM for quite awhile but that was over a year ago. 


Fri, 10/15/2010 - 00:23 | 651882 zaknick
zaknick's picture

America needs the kind of renaissance that only a total scrapping of the ancien regime's interests and societal structures (economic, social, energy-related) can be the petri dish for. Innovation, creativity (necessity is the mother of invention) unleashed will open golden gates of prosperity for all men ("full employment"). A cleansing catharsis is what's needed for y'all to see the infinite possibilities. I believe people are inherently good and they'll organize and progress.


I also think a thorough investigation to claims of technology suppression by the oily banksters is worth conducting (waterboarding, anyone?). Especially about Nikola Tesla's research into clean, free and unlimited energy.

Fri, 10/15/2010 - 09:32 | 652481 John McCloy
John McCloy's picture

100% with you. People are inherently good but there are some inherently wicked and those in between who look for security. Humans have achieved much in the last century. Oil will always be necessary but our consumption can be greatly reduced. Alternatives are expensive however thy is because the competition is limited as well.
I cannot even begin to get started and Nikola Tesla. What was done to him by Westinghouse is criminal. Tesla was unconcerned with money aside from using it to fund future products. The moment Morgan and his fellows discovered Tesla was intent on creating wireless and free energy for all of mankind they put and end to his funding swiftly.

Fri, 10/15/2010 - 00:09 | 651857 zaknick
zaknick's picture

I junked you. You have an argument against what the man is saying let's hear it, otherwise go fuck yourself.

Thu, 10/14/2010 - 16:32 | 650658 shushup
shushup's picture


Google's up $50 after hours - that's really all anybody cares about anyway. It's very sad.

Thu, 10/14/2010 - 16:29 | 650638 shushup
shushup's picture

Why do we need QE2 since the POMOs are doing such a great job?

Thu, 10/14/2010 - 16:51 | 650696 Miles Kendig
Miles Kendig's picture

Agree with Nomi or not her brain dances marvelously well.

Thu, 10/14/2010 - 16:43 | 650710 Dagny Taggart
Dagny Taggart's picture

If our Pres has to choose between saving the banks collective asses versus helping the already screwed Democrats, who do you think he'll choose? The banksters are the boys that put him in office. They'll be the only ones left to help him in 2012. The current Dems are toast this round.

Thu, 10/14/2010 - 16:55 | 650759 MuadDib
MuadDib's picture

He has no choice now.  We backstopped and guaranteed the financial system to the tune of $21 trillion.  It's either save the banks (print more money) or you bankrupt the US govt.  *Either* way, the USD is over.

Thu, 10/14/2010 - 16:48 | 650744 Canucklehead
Canucklehead's picture

Those toxic assets held by the Fed could just as easily go back to the banks who had sold them to the Fed.  Watch how this unfolds.  You will see pension funds, hedge funds, investors et al turn back MBS to the banks, thus bankrupting the banks.  Once the courts pass judgement on the validity of the MBS process, how can the Fed contain the fallout?  If the courts are too political in nature to pass proper judgement, the question becomes a political question and is dealt with in the appropriate arena.  There will be winners and losers.  At the present time, we just don't know who is who.

The Fed is an investor in MBS who is no different than anyone else.  The end result is the major banks are toast.  Once the trickle of MBS starts flowing back to them, the Fed will have no choice but to join the building tsunami.

Read Karl Denninger.

Thu, 10/14/2010 - 21:41 | 651563 FEDbuster
FEDbuster's picture

If the "major banks" didn't own and control the Federal Reserve Bank, I would agree with you.  The problem is they do.  We gave control of the United States back to the banksters in 1913.

"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes... Money has no motherland; financiers are without patriotism and without decency; their sole object is gain."
- Napoleon Bonaparte, 1815

Fri, 10/15/2010 - 00:00 | 651846 zaknick
zaknick's picture


Thu, 10/14/2010 - 16:57 | 650767 Silverhog
Silverhog's picture

Can you put Geithner as Eddy and Ben would make a great Grandpa.

Thu, 10/14/2010 - 16:58 | 650768 bingaling
bingaling's picture

seems like the perfect time to end the fed - while they are holding all of the losses

Thu, 10/14/2010 - 17:36 | 650842 SteveNYC
SteveNYC's picture

Bubbles Ben might just monetize the entire fuckin US ponzi-conomy at this gut tells me that QE2 (IF it takes place) might be a "bait n switch" of massive proportions:


"The Federal Reserve commits to buying $2 trillion in US Treasuries....."

One week later, a la Paulson:

"The Federal Reserve is responding to the new crisis and will instead buy $2 trillion in "AAA" MBS....."


This will end Ben, he'll be toast for this.

Fri, 10/15/2010 - 00:12 | 651863 RockyRacoon
RockyRacoon's picture

Good luck trying to explain that to a random sampling at your local shopping mall.

Fri, 10/15/2010 - 13:30 | 653341 SteveNYC
SteveNYC's picture

LOL! Think I'll take a drive to central PA this weekend and visit a Walmart, just to try your theory.

Thu, 10/14/2010 - 17:38 | 650847 CulturalEngineer
CulturalEngineer's picture

Its getting difficult to keep up with all the great articles here!

Here's a top-of-my-head proposal from a non-economist (undoubtedly not in the cards and certainly contrary to the "we gotta re-inflate housing prices" Fed mentality):

1. Re-price ALL commercial and residential Real Estate to a currently realistic price (essentially in historical relationship to market rents.

2. Allow ALL property owners with mortgages to reset at these new levels. (no special break for just those in default)...

3. Grant those with paid-off mortgages a tax-rebate or some other break to allow an equal benefit to those who would otherwise not during this process.

4. Allow those in default who COULD make the payment on the new mortgages to go that route.

5. Allow those who couldn't to rent at fair market rates at least until a buyer comes along.

6. Let the banks go bankrupt since they already are... and let the new now-viable mortgages be sold to regular citizens via something like in WWII with Freedom bonds or something (since these are now realistic mortgages they should be decent investments)

7. End the Fed and restore this function to its Constitutional origins.


I'm not claiming some authority so if people want to knock the idea apart that's fine... I'm not some idealogue... just trying to be as fair as possible to as many as possible.

And yes, I'm sure this would be very upsetting to all kinds of paradigms and status-quos. But they're not working so well right now anyway.

I'm afraid Mr. Buffet might have to take a hit to his balance sheet... oops!

Thu, 10/14/2010 - 17:56 | 650889 sasebo
sasebo's picture

 Sorry. It ain't about paper money, it's about STUFF.


Giving free money to the banks don't produce NOTHING. Stuff is produced by working people. So to produce Stuff you've got to give money to working people.


Money is a medium of exchange. It only has meaning if you have something to exchange. Without STUFF money has no meaning.


Of course none of the delusional assholes with the power to do something about this,  stupid Bernanke, stupid Geithner, stupid Obama, all of stupid congress & all the stupid regulators  have no clue.


What we really need to do is get TD some power.  

Thu, 10/14/2010 - 17:58 | 650895 ZackAttack
ZackAttack's picture

So, any idea how much every dollar's worth of a given home's price is leveraged?

Thu, 10/14/2010 - 18:05 | 650913 tony bonn
tony bonn's picture

the final engineered collapse of america's economy is at hand....the banksters designed this fraud to allow panic buying while the vase majority do panic selling....

the great hyperinflation is upon us....those of you holding dollars are fucked almighty....

bernankrupt, and the indonesian whore are roosting in their den of thieves - the 2 most corrupt and evil men in american history outside of george bush, nelson aldrich, and edward lansdale.

Thu, 10/14/2010 - 23:56 | 651837 zaknick
zaknick's picture

I could add quite a few more names to that list but agree with you wholeheartedly.

Thu, 10/14/2010 - 18:06 | 650916 Jeffersonian
Jeffersonian's picture

Question for an expert: what happens if the value of the Fed's assets shrink (MBS values), do they have to compensate by shrinking their liabilities (cash in the system) so the balance sheet balances? Just looking at this from how typical bank would operate, since this exact mechanism is ultimately the cause of most financial crisis resulting in bank failures. I keep reading that the Fed can always keep a bid in to prevent MBS values from dropping, but that is in contradiction to how a bank balances a balance sheet. Is the fact that the liability (cash) is somethign the Fed can generate at will the reason it doesn't work like a normal bank?

Fri, 10/15/2010 - 00:10 | 651856 RichardENixon
RichardENixon's picture

Why would the Fed ever have to mark the "assets" to market? We don't follow that quaint old custom anymore.

Thu, 10/14/2010 - 18:26 | 650980 max2205
max2205's picture

Forget it people. TG and BB are staying the course and will force Chavez to the law to enable them to plow forward. Quit dreaming.

Thu, 10/14/2010 - 19:11 | 651120 Ckierst1
Ckierst1's picture

"The free-market, let the banks do what they do mentality was what allowed them to create a $14 trillion mountain of securities backed by precarious mortgages to begin with."


Gimme a break!  This is bullshit!  Like we've had "free markets?" Simply the existance of the Fed puts the lie to that tripe.  Try mercantilism.

Thu, 10/14/2010 - 20:32 | 651362 Fred Hayek
Fred Hayek's picture

Thank you.  I was going to post a response to that as well but you beat me to it.

As if the Greenspan put didn't factor into all of their thinking.  Where the hell is the fed saving your ass no matter what, no matter how big a risk you take, in an actual free market.

Thu, 10/14/2010 - 19:14 | 651129 Ckierst1
Ckierst1's picture

"Instead, the Fed now owns nearly $1.5 trillion of toxic assets that have no bid (meaning no one but the Fed wants them). They would have less of a bid if there was even more uncertainty about the loans that fill them."


Not to worry.  We'll somehow have them as assets in our GRAs. 

Thu, 10/14/2010 - 19:36 | 651189 Clancy
Clancy's picture

What could the government possibly do about this?

Halting foreclosures doesn't solve the problem.

Mon, 10/18/2010 - 10:26 | 658095 MachoMan
MachoMan's picture

Implode and hand over its assets to those hands with a little more wherewithal...  i.e. the benefactors of the wealth gap.

Thu, 10/14/2010 - 20:30 | 651344 Fred Hayek
Fred Hayek's picture

(sorry, this was a response to John McCloy several posts up)

Yup and the incredible incompetence of the Obama administration is shown by their inaction on nuclear and specifically liquid fluoride thorium reactors.  A ten year old could figure out the pitch on that one. 

"A safer, cheaper technology that was neglected nearly 40 years ago because you couldn't make the fuel for nuclear bombs from it.  I have right here in my hand . ." (holds up a clump of thorium which you actually *can* hold in your hand safely) the material that will safely, cheaply and without producing greenhouse gases power the american future."

But, no, nothing. 

Thu, 10/14/2010 - 20:34 | 651367 californiagirl
californiagirl's picture

What does the FED care?  If your look at their footnotes, they purchased mostly Fannie and Freddie crap.  What Christmas present did the taxpayers receive last December 24th from Geithner?  Didn't he extend an unlimited U.S. Government credit line to Fannie and Freddie (backed by us taxpayer, of course)?  So Fannie and Freddie can continue to fork money over to the FED on all that garbage unless Geithner reneges.   

Thu, 10/14/2010 - 21:52 | 651594 FEDbuster
FEDbuster's picture

Bingo! It's a double reach around.  The FED provides Geithner the money he needs to backstop the FED's toxic balance sheet, in return Geithner saddles the Country with more debt to the banksters.  In the end, the banksters get to run the show, because the hand that gives is above the hand that takes.  Bernanke (the bankster's puppet) has more power than the entire government and court system, which is just how the banksters planned it back in 1913.

Thu, 10/14/2010 - 20:44 | 651397 ghostfaceinvestah
ghostfaceinvestah's picture

Instead, the Fed now owns nearly $1.5 trillion of toxic assets that have no bid (meaning no one but the Fed wants them).

FAIL, I guess the author has never heard of the agency MBS market.


Thu, 10/14/2010 - 21:11 | 651477 Yancey Ward
Yancey Ward's picture

This is most likely a stupid question, but is it possible that QEII is nothing more than than a cover for the fact that money really isn't coming into the Fed due to maturing MBS?

Fri, 10/15/2010 - 02:07 | 651960 Moonrajah
Moonrajah's picture

Good article! With all the feces dribbling from multiple fans I kinda overlooked at the US government's stake in all of this. This really waters down any chances of a somewhat fair resolution.

I think in the end the F&F cumbucket will take on much of the underwater foreclosed inventory all at Mark-to-Fantasy prices of course through some political posturing (if you don't do it we will have marshall law!) and MSM propaganda (it's the deadbeats trying to milk hard-working banks over some technicality!).

I really hope that more people will see for what it really is and start calling their congressmen (both in office or those that are about to go there). Maybe, just maybe the amount of people will reach a critical mass that would make the PTB think twice before bending down for foulsteet.

Fri, 10/15/2010 - 07:11 | 652159 chindit13
chindit13's picture

Let's see....

The Fed has $1.25 trillion of dross that is worth somewhere between zero and the paper it's printed on (depending on how foreclosure gate and title searches pan out), and the bankers who wrote the crap mortgages and bundled the toxic paper and stuffed AIG with the payer side of the CDS' on what the banks knew to be rancid paper stand to pull down $144 billion in bonuses this year, which is the GDP equivalent of the 49th largest economy in the world.

What a country!  Where else can a bunch of psychopaths unleash the full malevolence and impiety of their cold hearts on to the unsuspecting public and not only get paid exceedingly well for doing it, but be completely sheltered from any and all harms by the elected representatives of the people.

Tue, 11/16/2010 - 10:34 | 730582 daniel
daniel's picture

Really this is a great post from an expert and thank you very much for sharing this valuable information with us.
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