To all those wondering why the Treserve scrambled on Friday to allow banks to resume paying dividends (even something as downright hilarious as Citi's $0.01...Is that the lowest recorded dividend yield in history?) here is your answer. The Treasury just announced it would sell its $142 billion MBS portfolio, supposedly to the same banks who are now using their cash on the books to satisfy shareholders too. The Treserve will sell $10 billion per month depending on market conditions, meaning a downtick in the market will now crash not only that given day's POMO (a UST market operation), but also have a reflexive impact on the entire MBS trading complex. As usual we can't wait for Directive #1 which will make selling any share an act of treason.
The Treasury Department said Monday that it will begin to sell its
portfolio of $142 billion in agency-guaranteed mortgage-backed
securities. A senior Treasury official said the department plans to sell
up to $10 billion in MBS per month subject to market conditions. The
sales could generate a profit for taxpayers of about $15-$20 billion as
market conditions have improved, the official said. Congress gave
Treasury the power to purchase the securities guaranteed by Fannie Mae
and Freddie Mac to provide stability to financial markets during the
financial crisis of 2008. The official said the sales were not related
to the looming debt ceiling.
As usual the only loser here is the taxpayer, as banks will very soon have dangerously low cash and capitalization levels, meaning the next downturn, which nobody will have seen coming, will result in another cool 10-20 trillion in pieces of linen thrown at it, and another 10-20% drop in the value of the former reserve currency.