This page has been archived and commenting is disabled.
Bill Gross Was Right: Fed Board Member Tarullo Calls For Restart Of MBS Monetization
When we first reported on Bill Gross' massive surge in duration and accelerated purchase of Mortgage Backed Securities a week ago, we said, "That's either what is called betting one's farm on Operation Twist, or, betting one's farm that the next thing to be purchased by the Fed in QE3 or QE4 depending on how one keeps count, will be Mortgage Backed Securities." It was the letter. Confirmation that Bill once again frontran the Fed comes courtesy of Daniel Tarullo who in a speech at Columbia University, talking about the labor market of all things, just said the following: "I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities (MBS), something the FOMC first did in November 2008 and then in greater amounts beginning in March 2009 in order to provide more support to mortgage lending and housing markets." And there you go: watch as the market rips on the expectation that the US will bail out China all over again. Oh wait, at this point China couldn't care less what happens to the GSEs stack. So unfortunately as can be expected, this is nothing but yet another bailout of US banks, which lately have been buying up MBS like crazy (Gross is not the only one with the hotline), and expecting to flip right back to Brian Sack: after all something has to be done to save the poor things from a total pancaking of the Treasury curve.
The relevant section from Tarullo's just released speech (full thing can be found here).
Within the FOMC and in the broader policy community, there has been considerable discussion of possible additional accommodative measures, from communication strategies such as forward guidance on the likely path of the federal funds rate to additional balance sheet operations. I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities (MBS), something the FOMC first did in November 2008 and then in greater amounts beginning in March 2009 in order to provide more support to mortgage lending and housing markets.
In November 2010, when the FOMC initiated another large-scale asset purchase program, only U.S. Treasury securities were involved, in large part because of a desire to return, once the recovery was well established, as quickly as possible to a Federal Reserve balance sheet that did not contain other kinds of assets. A related concern of some was that the purchase of MBS was a form of credit allocation, rather than simply monetary policy that lowered long-term rates for all borrowers. For similar reasons, the proceeds of agency securities accumulated pursuant to the first large-scale asset purchase program were reinvested in Treasury securities rather than in other agency securities.
At the September FOMC meeting, we changed our reinvestment policy so that the proceeds of maturing agency securities will now be reinvested in new MBS. Yields on longer-duration Treasury securities had trended down appreciably in the late summer in response to market demand, safe-haven flows, and diminishing expectations for growth. Even though nominal MBS rates had also declined somewhat, spreads to Treasury yields had, over the course of the year, widened noticeably. Since this announced change in reinvestment policy, spreads on lower-coupon MBS have narrowed, but they remain higher than they were early this year.
A large-scale MBS purchase program has many of the benefits associated with purchases of longer-duration Treasury securities, such as inducing investors to shift to other assets, including bonds and equities. [translated: everyone go into high beta stocks right now] But it could also have more direct effects on the housing market. By increasing demand for MBS, such a program should reduce the effective yield on those MBS, which in turn should put downward pressure on mortgage rates. The aggregate demand effect should be felt not just in new home purchases, but also in the added purchasing power of existing homeowners who are able to refinance. Indeed, homeowners who refinance get the equivalent of a permanent tax cut. Concerns about central banks making sectoral credit allocation decisions are understandable in general. But here we are talking about a widely traded instrument in a sector that appears, now more than ever, to be central to the slow pace of recovery.
Now, I should note that the mortgage market is quite segmented. One relatively small group of borrowers has extremely good credit and funds for sizable down payments. That group can readily obtain a mortgage. The other, much larger group lacks one or both advantages, and it faces much greater hurdles in the mortgage market. So there is some chance that the principal effect of renewed MBS purchases would be to allow those in the first group who have already refinanced to do so once again or to buy a new home at a somewhat lower mortgage rate. These outcomes would be helpful, but the effectiveness of an MBS purchase program would be amplified, perhaps significantly, if certain nonmonetary policies were changed.
Proposals for promoting refinancing have been made by many academics, policymakers, and policy analysts. Any proposals that could sensibly and effectively be implemented would increase the effect of an MBS purchase program. For example, action could be taken to bring the benefits of refinancing to underwater borrowers. In principle, borrowers with mortgages that are guaranteed by government-sponsored enterprises (GSEs) such as Fannie Mae and that have loan-to-value ratios of up to 125 percent can refinance through the Home Affordable Refinance Program. In practice, though, numerous obstacles have kept the program from helping many potentially eligible borrowers. Underwater borrowers whose loans are not guaranteed by GSEs are essentially unable to refinance at all. Policy changes directed at this last, larger group of homeowners would have to be carefully designed so as not to transfer credit risk from private investors to the government, and could well require legislation.
Needless to say, though, an MBS repurchase program will not cure all that ails the housing market, much less fill the whole aggregate demand shortfall. There is a host of other problems, including continuing issues in mortgage servicing, uncertainty as to when house prices will have bottomed out in local markets, ambiguity about the scope of putback risk for securitized mortgages, and the substantial part of the underwater mortgage problem that cannot be solved by refinancing. But I believe that MBS purchases are worth considering as a monetary policy option precisely because they carry the promise of addressing the feature of the current aggregate demand shortfall that differs from typical recessions and recoveries.
***
Look for Bill to have bought much more MBS when the October TRF update is released. The good thing out of all this: Jan Hatzius can finally shut up about Nominal GDP targetting, a topic so stupid we have been ignoring it on purpose. Instead, the Goldman economist can now redouble his efforts on pitching MBS monetization as the one greatest thing to save Goldman bonuses for 2012 (2011 is a screatch), er... we mean, tax-break for the middle class.
»
- 20340 reads
- Printer-friendly version
- Send to friend
- advertisements -
Micky:
Never mind the furthermore, the plea is self defense. Zilch!
Oh add this PREPAY BITCHEZZZZ! That was the answer for the Maiden Lane cleanup, but Robo-signers took the houses before they could refi- Refi's come back at 100 cents on the Dawlah, Bobbie.
You keep telling yourself that. Whatever helps you sleep at night.
Yeah right bob, Bill just woke up one morning and said to himself:
"You know, I ought to buy a whole shit ton of worthless mortgage paper because RE just seems like it is in a good place right now"
C'mon Bob, give me a break. This is the most valuable fund in the world.
Print, Baby, Print
This reminds me of other FED programs to sop up debt. The 2B2Fails go scurrying around buying up bad debt for pennies on the dollar because they have inside information of what the FED is going to do, then they cash in when the fact becomes reality. Hang'em all and hang'em high.
Who the hell would WANT to commit to a house, even if they could? Probably the 1% who want to rent it out.
Seriously...maintaining a house is a bitch. Property taxes are going up. Everyone I know who bought one regrets it...even the ones who bought after the bubble.
Add to that equation the need to remain flexibly mobile if you happen to be under The need of employment curse...
Having a house in a economic dead zone is a real stick in the mud!
Exactly. My best friend bought one three months ago and already regrets it because his job, which seemed stable at the time, is now iffy and he's thinking he'll have to move. He also regrets it because he's pumping $$$ into it for repairs, taxes, etc. I can't see why anyone would want one right now unless they have a good job and can pay for it in cash. Even then, it's risky because States are likely going to raise the f**k out of property taxes since they're all broke.
Houses were never allowed to organically bottom out, so even if you get people in them via government incentive, the prices are so skewed it will lead to complications down the line. Houses are still about twice as much as they should be.
PS. End the Fed.
devo,
Zactly.
If they pushed the rate to .05% on a 30yr, there would be a few takers
.People have NO Moneeeeeeeeeeeeeeee.
But, those that would could only be the one's in the best areas, lowest unemployment, and have great jobs.
With over 15 Million folks out of work, and likely at least 10 million of those HAD homes,with the Boomers retiring we are going to downscale,(or rent) not BUY UP.
It's a Lose Lose situation.
But from my perspective we are all discussing a moot point.
Neither the Fed, nor the Admin since this started has wanted ANYTHING they have tried to work.
Epic Fail is what their after. And epic fail is what they will get.
The old adagae, "People do not plan to fail, the Fail to plan", does not hold true here.............planned Global economic Destruction is what they are going for, planned failure.
What's the end game?
Historically speaking, failure of one regime just leads to another. People will continue to exist, so if this is a planned failure what is the motive? Who benefits from a planned failure? Obviously the uber rich, but are they still rich in that scenario? It's hard to believe this is planned (unless the 1% all bought mounds of gold).
Of course they're hoarding gold, that's why they talked it down so hard. That's why they papered it short so hard. It's what makes them hard, besides looking at themselves in a mirror or 12 year old boys.
There is no end in the game. It's slavery for you and me, islands, mistresses and riches for them for as many generations as they can sustain it.
Hahaha--yup I bought one last year. Putting it up for rent in the spring.
"Who the hell would WANT to commit to a house"?
Someone who realizes that they could suddenly have very little income, if the SHTF as widely expected around here, and would like to retain a roof over his head when he can't pay rent. You can grow veggies and raise chickens, but it isnt much use if you may be evicted next week.
Maybe also someone who suspects a debt jubilee isn't too far off.
Great read on where the thinking comes from behind all the stupid fed bullshit.
http://mises.org/daily/5589/Keynes-and-the-Ruling-Class
End Pimco
End the ability of the privileged few to front run the Fed.
End the Fed.
the fed will try anything. there was speculation about twist for months before the bernank went for it. the fed is taking advice from the news outlets. if blue horseshoe wants the fed to buy more mbs then it shall be so.
I find it insahne, their ideology/ slave to the bankers prevents them from acting on the real issues, and instead they do this crap. Most likely, my imternet connections, and posts are by this time monitired by the feds, but these people need to be removed from society at any cost. why can't al queda target them and do us a favor. fuck if what you do doesn't work. keep doing it forever instead of changing how you look at the world. America needs some crazy psycho to be a hero and start doing something.
It was Supreme Court Justice John Marshall in 1803 who said: "It is emphatically the province and duty of the judicial department to say what the law is." IOW, the law is what we say it is.
The bankers are engaging in a similar totalitarian policy. The bankers are saying what the money is, the bankers are saying who the people are who can go to the loan window, the bankers are saying what the supply of the money is and who gets it, the bankers are saying what the unit value of the money is, the bankers are saying what your savings are or won’t be worth. In short, according to the bankers, America is what they say it is.
One of the strengths and rallying points we the people have going for us, it’s all unconstitutional. Congress doesn’t have the power to give away the control of the United States currency and allow privateers to print and determine its value thereof - just as it was unconstitutional for Congress to allow Obama to go into Libya without declaring war.
When the size of the financial crisis is eclipsing the GDP of developed countries, when you reach the scope of central banking power that two banker puppeteers, Bernanke and Geithner, can strip you of the freedom and inheritance left you by your forefathers, i.e., Americans’ very fortunes and lives, Americans in my opinion can no longer support this system.
it's not fucking working in england, it's making the people worse off, so they do more of the crap. this is war!!! these fuckers are doing war against the general populace. making everyone poorer except for the markets and bakers. these people are war criminals.
you're right, I hate the bakers, with their cakes and pies, screw em :P
double post sorry
USA is going to collapse soon. couldn't be a better news for today
How do I get on that hotline?
Here's my number 867-5309
This is a pretty big bet that the euro will remain mired in its mess for quite a while. If they get their shit together (almost impossible, I know, I know) it will be timberrr for the dollar and hello $200 WTI. The following article however does raise the question of what exactly the Fed would be buying. If all of these foreclosures are FUBAR'ed doesn't that make the MBS's that hold them a little complicated?
Guest Post: Houston, We've Got A Problem - Bevilacquahttp://www.youtube.com/watch?v=j2AvU2cfXRk&feature=player_embedded
"A large-scale MBS purchase program has many... benefits... But it could also have more direct effects on the housing market. By increasing demand for MBS, such a program should reduce the effective yield on those MBS, which in turn should put downward pressure on mortgage rates. The aggregate demand effect should be felt not just in new home purchases, but also in the added purchasing power of existing homeowners who are able to refinance. Indeed, homeowners who refinance get the equivalent of a permanent tax cut.13"
it's my understanding that any financing cut is usually offset in the price of the house. no?
sorry, the Duke should have been up at Low Memorial tonight for Daniel Tarullo's speech and shooting it or him.
my guess is that that part of speech happens around 8:07 pm EST. since I have no vid mashup here's something else
that captures the spirit of a Bernanke-Tarullo discussion
http://www.youtube.com/watch?v=5GK_kfR9UBA (the 'What'd we learn Palmer' scene from Burn after Readin)
You'll get no argument from moi!
I'm heavily invested in Ag/Au, and since I'm not ready for the deflationary collapse, I'm all for some more out-of-control inflationary growth in the monetary/debt Ponzi!
Bring it on Free Shit Army, I'm prepped and ready for ya...
You picked up one of my favorite lines, "Indeed, homeowners who refinance get the equivalent of a permanent tax cut."
The part he left out was the part was "Indeed, completely offsetting this stimulus from the economy's standpoint are the people who invested in those bonds and were earning interest. Their bonds have now been called and they get to reinvest at even crappier rates, leaving them with the equivalent of a permanent income reduction.:
Good old Fed. Always believing in the free lunch and ability to print our way to happiness and wealth. I hope Paul Volcker loses it and jumps the large wooden table at the Fed to start choking these guys soon.
OT
Dexia pushing the envelope of stupidity...
http://www.google.com/url?sa=t&rct=j&q=%E2%82%AC1.5bn%20dexia%20loans%20...
More evidence that the TBTFs’ hole is bigger than they thought; they can’t get the hemorrhaging stopped unless they capture more value from the U.S. economy (printing). The value comes from the production and savings of the U.S. economy, siphoned off by the inflation tax.
Bill Gross in on it? Why no. It’s possible he has extraordinary of powers of prophecy. Couldn’t he be making even more billions as a National Enquirer soothsayer?
They threw him a bone so he would shut the fuck up.
EU wants to ban credit rating agencies from downgrading crap European economies.
Europe is visting it's commie asset supporting cartel roots again...
On wires, no link.
taking it a step further, soon they might be hunting down credit analysts like rats...
which makes me shiver since I once worked alongside David Beers @ Salomon Bros.
during his rough trade days.
Free Shit Army = FSA nice +1. Only not for you slave.
Chump,
What a LAFFER................shesssssssssh, those damned Socialists want everything for FREE>
...then they collpase. The whole EZ.
I don't know a lot about this, but it seems to me that if the Fed purchases a MBS at face value and some of the underlying mortgages in the security go bad, is this not a de-facto appropriation of money? Isn't it possible that the Fed is in fact engaging in what will amount to the de-facto appropriation of hundreds of billions or even trillions?
But I thought under the Constitution that only Congress can appropriate money.
Seems to me that as a society we have a huge problem. Potentially even a nation-ending problem. We have an entity, it is not a government entity but in fact a cartel of privately owned international banking interests, that is nowhere to be found in the Constitution, and was shoved down our throats in 1913 by the same uber progressives that gave us prohibition and the income tax. And this entity can conjure up and push around trillions of the people’s money at will to the benefit of its friends, and in doing so decimate the standard of living of the vast majority. All the while unelected, unaccountable, and with a government scared to death of it.
And for icing on the cake 99.9% of the American people couldn’t form a cohesive sentence about what the Federal Reserve is and what it does.
If there is a bigger problem facing our society than the Federal Reserve, I can’t think of it.
Dean Wormer wasn't just talking to Flounder, but to America..."Fat, drunk, and stupid is no way to go through life, son".
Is it wrong to hope that someone rear-ends Tarullo's car into a speeding train?
Cuz, I'd feel bad.
The debate continues on whether the US Fed Chairman Bernanke will release more quantitative easing (QE-3), other banks are removing doubts.
Wednesday, The Bank of England’s Monetary Policy Committee voted to add another £75-B of QE in order to support the weak UK economy. This is a Bullish sign for precious metals long term IMO.
Getting another bailout!!!!!
Fucking bastards.
It's good to be the king.
http://geraldcelente.proboards.com
howzabout the FED stays the fuk outa the mortgage backed securities market and stops trying to make things "better" so homeowners can re-fi and have (ie borrow) more money to buy shit. with. huh?
also congress
these mofos are zero-for-forever. somebody outa lock them up for being dangerous!
Spearking of Tar... he should be Tar&feartherd
Delusional Fuck-Wadd...
See what higher
education does to you.
So.
He says...
They are promises that are "different"
Delusional Fuck-Tard.
the fed is nothing but a bunch of east coast maggots
tarullo - boston
bernank - south carolina
yellen - brooklyn
duke - virginia
Fuck the fed, fuck harvard, fuck wall street, fuck those maryland virginia d.c. scumbags!
http://www.youtube.com/watch?v=PL-1T9g5-vU
There are no benefits to refinancing.
If you refinances, you will just endup in a higher Tax Bracket and endup paying the govt more instead of the bank.
The mortgage backed securites are a fraud, for they offer only an interest in collateral paper.... all mortgages since 2000 have been UNSECURED loans.
Servicers have no right to foreclose, only the right to collect payments, as they sold the paper to third parties/(trusts) and the trust account is extinguisehd 6 - 12 months from the original issuance/creatin of the credit to buy the house.
If you have a mortgage right now, there really isn't one good reason to pay it.... the house is yours, there is nothing they can do to really take it from you if you stop making payments... because they are not the holders of the original note, they are holders of a right to service (collect on the debt) just like when credit card companies sell your 1000$ debt to a debt collector for 100$.... there is no original contract to pay anyone anymroe.... its all been destroyed... and there is no way to put humpty dumpty back together again.
The Tax payers have already payed for all these homes 2 - 3 times over, and the banks want more money.... on the same homes.
It would of been cheaper to just bailout the homeowners than the banks and the entire mess would of been taken care of without the giant paper BLACK HOLE and without the recession, we would of had a little inflation (like we dont already?) but not enough to kill the dollar.... gas would of been around 2 - 4 dollars....
But no, go ahead... just keep bailing out criminal fraud banks.... see how far that gets you all ;)...
It is very likely that the path of least resistance is higher for equities. This is largely due to the DX pushing lower and CL breaking higher in the days and weeks ahead. It appears "risk on" is ahead. http://bit.ly/nHdrwL
I doubt that. Not before the remaining prop desks fleece John q at least one more time before the ramp up into e new year. They can't afford to not to.
Looks like the Fed's mission has again changed from strong and stable currency (EPIC FAIL), to full employment, (ANOTHER EPIC FAIL) and now to prop up the stock market and their crony banker friends... AT THE EXPENSE OF THEIR ORIGINAL OBJECTIVE! Fuck these ass holes! Oh yeah. And did you know the world would completely end if they didn't do what they are doing? The world would be a better place if they went bankrupt and Congress shit canned them. They will also fail at proping the stock market.
this bernanke guy just keeps putting the cart before the horse -
confused in florida,... need help, tyler
ps. if they only took the $ trillion-plus, and put it into the gse's for 'mark[ing]-too-market',... knowing the documentation had/was to be clean, and mostly [?] legit regarding their inventory, we'd be ahead of the game.
jmo
Nothing to see here folks, move along. The bank manipulaters have proven that gold was a bad investment. We're clearly on our way back to prosperity. Thanks to you Ben "Burn"anke
I fear they are going to keep pulling this bullshit till they start a half-assed Communist revolution.
People are starting to realize that they are being fucked in the ass without the benefit of lube.
But what do I know?
http://geraldcelente.proboards.com
What's keeping this market rising? America, Corporate Welfare Capital of the World. Shining example of how some people are more equal than others. Your taxes will be collected at higher rates and your benefits cut in order to support not just banks, but anything with pull and influence in DC. They'll complain that scientific research is "pork", but with the left hand they'll dip into your pocket and grab your money to support Countrywide Financial (via BAC and a new fed MBS repo plan). And don't forget big oil (still gets tax subsidies, then you get taxed again at the pump) and big defense (we will never leave Afghanistan despite Bin Laden's death. That's just good business)
"March of 09." When the HYPER hits, Ben will be dragged out of a sewer .
Fucking bull shit. I just want to kick that bald headed muther fuckers ass into the gutter. Bull shit.
This guy has shit for brains.
Whats fraud mommy?
http://globalresearch.ca/index.php?context=va&aid=27106
Asia buying mad amounts of USDs right now.
So the looting continues unabated. Three cheers for Capitalism with Socialized Losses. Next stop -- free fall into the abbyss of Great Depression II.