Guest Post: Housing, Diminishing Returns And Opportunity Cost

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Housing, Diminishing Returns and Opportunity Cost

It's not about "saving" housing, it's about saving the banks.

The Fed's policies of keeping interest rates at zero and buying mortgage-backed securities are intended, we're assured, to bolster the housing market by making it cheaper for buyers to borrow money. With mortgage rates under 4% and a trillion (soon to be two) dollars of dodgy mortgages transferred from the banks' tottering balance sheets to the Fed's wonderfully opaque balance sheet, then this appears plausible. But of course it's all a PR ruse, like everything else the Fed says.

If the Fed wanted to "save" housing and not the banks, why not buy mortgages directly from homeowners? Instead of buying underwater mortgages from the banks, why not just buy the entire $10 trillion of residential mortgages outstanding and charge the homeowners the same rate the Fed charges banks, i.e. zero?

The Fed's goal is not to relieve debt-serfdom, it's to enforce it. The entire purpose of the Fed's policies is to ensure homeowners keep paying interest to banks for the rest of the lives, and to encourage those who are not yet debt-serfs to join the serfdom with a "cheap" mortgage.

How did that work out so far? Hmm, 31% of all homeowners are under water, owing more than their house is worth:

The Treasury has also been part of the debt-serfdom enforcement, as it bailed out Fannie Mae and Freddie Mac, not the borrowers who pay interest on Fannie and Freddie-backed loans. FHA has stepped in to fill the gap left by the implosion of Fannie and Freddie, and so government subsidies of the mortgage market are running at full steam.

As Lance Roberts brilliantly shows, dumping trillions into housing/mortgages has yielded diminishing returns. Q2 GDP - Nothing Good Happening Here:

I just want to dispel the whole current myth about the importance of a housing recovery relative to the economy. At one point in our history, housing was a very important component of economic growth, currently at a mere 2.6% of GDP, that is no longer the case. So, while we spend billions upon billions of taxpayer dollars trying to bailout homeowners, forgiving bankers of their criminal misdeeds, and not dealing with defunct government agencies all in the name of saving the economy - in reality it has very little effect.

Saving the banks by dumping trillions into housing is classic marginal return. Since the mechanism is broken--housing as the "wealth effect" generator and the source of billions in profits for banks--every $1 trillion in subsidies, give-aways, guarantees and mortgage purchases by the Fed yield fewer benefits to the real economy.

For example, how are those 3% down payment, low-interest FHA mortgages working out? All praise to the new subprime – 1 out of 6 FHA insured loans is now delinquent. Yup, defaults are rising and the taxpayers will be bailing out the banks once again to the tune of tens of billions of dollars.

This raises the question of the opportunity cost of squandering trillions on mortgages and banks: what else could the nation have done with those trillions? Something with a higher return, perhaps, such as upgrading the nation's electrical grid? Something that actually generated sustainable growth because it was a high-yield investment and not a bail-out of fraud, friction and malinvestment?

Once again the question arises: rather than loan $16 trillion to banks at 0%, why doesn't the Fed just buy all residential mortgages for $10 trillion and charge 0.25% interest on the lot? That would cut out the banks, and that is the point here: the Fed's policies are not aimed at "helping housing," they're aimed at protecting the banks' income streams, assets and political power. Since the banks own $10 trillion in mortgages, housing is a key concern of the Fed's "save and enrich the banks" campaign.

Here's the Fed's policy in plain English: Debt-serfdom is good because it enriches the banks. All hail debt-serfdom, our goal and our god!

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
neptunium's picture

<----- All things considered, we are royally fucked.

<----- This isn't half as bad as it looks. They'll work it out.

neptunium's picture

Once again the question arises: rather than loan $16 trillion to banks at 0%, why doesn't the Fed just buy all residential mortgages for $10 trillion and charge 0.25% interest on the lot?


It would also have the added benefit of making property ownership and moderate housing investment attractive again.

exi1ed0ne's picture

0.25% or 3% - makes no difference if you have no job to pay for it, it would be highly inflationary, and the banks would be instantly in the hole due to finite properties supporting unlimited debt. (asset suports debt which creates asset that supports debt which creates asset which eventually leads to turtles all the way down)

LMAOLORI's picture



Everyone has to have a place to live what this is doing is providing rentals for the plebs via looted assets from the U.S. taxpayers for crony's so it will help the banks and wall st. investors. When Austerity kicks in after the elections you will probably get some more low paid jobs that you will have no choice other then to work at unless you want to live in the streets or have prepared otherwise.

flashback a few months ago

Warren Buffett: I’d Buy Up 200,000 Homes, Houses Better Investment Than Stocks At Today’s Rates

About 6 million borrowers will lose their homes in the next five years because of inability to pay their mortgages, creating demand for as many as 4 million new rental households, according to Scott Simon, head of mortgage bonds at Pacific Investment Management Co. in Newport Beach, California. If funds spend $6 billion on foreclosures, that buys only about 40,000 homes at $150,000 apiece, leaving plenty more for investors of all size to buy rental housing, he said.

exi1ed0ne's picture

This crisis (manufactured or not) has done is to fundamentally change how housing is viewed. Good or bad, mobility is now more valued then home ownership. The ramification of this shift is beyond the ability of most people to realize it's importance.  We are becoming a society of gypsies, not tied to geography or community, with an even further compressed time horizon of decision making.  I know I'd personally rather rent a house than buy one.  One year contract at a set price, vs 30 years?  Easy math, especially with the reality of having to go where the work is when an area dries up.  Mom and Dad's basement are really the new normal.

socalbeach's picture

The article on private equity funds buying housing was good, thanks.  However, Scott Simon's statement was odd.  If millions of borrowers lose their homes, there will be extra demand for rental houses, but if investors purchase the lost homes there will also be millions of extra units for rent.  And if an existing renter purchases the home there will be one less renter to make up for the extra renter who lost his home.

neptunium's picture

Well you're going to get inflation either way, you also get plenty of banking collapses either way, the difference is that you don't continue to reward the illiquid entities and (just as with homeowners) allow them to fail if they can't sustain themselves in the marketplace. 

The status quo is preventing the adjustment and the longer that goes on the more the situation will resemble that of Greece, which had it been allowed to default 2 years ago would currently be just about the only nation in Europe going through an economic boom.


exi1ed0ne's picture

You are right that we have inflation either way, but currently the Fed has no conduit to get NEW cash to the masses required to replace funds consumed in interest payments.  Well, other than indirectly through federal borrowings that fund assistance programs.  This scheme would be a direct new cash funnel to main street.  That will never happen because new money is stronger than old money, as inflation occurs over time as money circulates.  Can't have Joe Homeowner get the strong money first.  They only get the tired old money that has had all the inflationary bonus wrung out of it.

rbg81's picture

I have another theory.  I've been looking at real estate lately and concluded its not a bargain.  In many cases, the property taxes are MORE than a mortgage would be--sometimes substantially more.   As mortgage rates get progressively lower, property taxes get progressively higher.  In some cases, you could GIVE the house away and it still wouldn't be a bargain 'cause the property taxes are so high.  And it may come to that.  Because, you see, low mortgage rates are just a back door bailout to local governments by enabling them to jack up property taxes.

Parrotile's picture

And once you've "bought" the property (probably just rented the money from the bank anyhow) you're nicely on the hook.

And look at all the VERY nice Retirement plans YOU will be expected to fund for the "entitlement set" - all the Federal workforce, all (cough "working" cough) or your benefit . . . . . . .

OpenThePodBayDoorHAL's picture

yeah, endlessly propping up zombie banks has worked so well for real estate and stocks in Japan...LOL

Japan real estate: 70% decline from peak, still dropping (-3.4% in 2010, -3.1% in 2011)

Nikkei: from 49,000 to 11,000


crusty curmudgeon's picture

Welcome to the party, pal.

 “Politicians, like diapers, have to be changed frequently – and for the very same reason.”

LMAOLORI's picture



Right on Crusty this article is like beating a dead horse we all realize the Fed isn't trying to help Main St. but to help Wall St.  and Obama (even the MSM is alluding to the Fed's policies favoring the rich) as someone else said QEternity right before an election DUH

Obama is stealing Wall Street from Romney

Guess Which President Has Been Best for Stocks?

Federal Reserve policies favor the rich

Stoploss's picture

Bingo. One way or the other, the FED will own every mortgage, wether they want to, or not, they just opened the door.

Shizzmoney's picture

The Fed's goal is not to relieve debt-serfdom, it's to enforce it

The Fed is going to be surprised when the young proles of the future can't afford their precious "land" or have no interest taking "mortgages" that will only eat away at what little income they'll have left.

Here's the Fed's policy in plain English: Debt-serfdom is good because it enriches the banks. All hail debt-serfdom, our goal and our god!

It is funny that in our Constitution, the separation of Church and State is clear.  But on our Currency, the mention of "God" is all over the fucking place. 

And they really also, don't mention which "God" we trust!  Sicne the Wall St Banks and the Fed print the money, are they the Gods?

The Constitution and the US Dollar.  Both are pieces of paper.  Yet one outweighs the other today in our Government, Corporations, and Institutions. 

You can guess which one that is.

LouisDega's picture

What is this word mortgage everyone speaks of?

chunga's picture

French origin:

"death pledge" alternately "death contract"

noob's picture

MORTGAGE, contracts, conveyancing. Mortgages are of several kinds: as the concern the kind of property, mortgaged, they are mortgages of lands, tenements, and, hereditaments, or of goods and chattels; as they affect the title of the thing mortgaged, they are legal and equitable.
     2. In equity all kinds of property; real or personal, which are capable of an absolute sale, may be the subject of a mortgage; rights in remainder and reversion, franchises, and choses in action, may, therefore, be mortgaged; But a mere possibility or expectancy, as that of an heir, cannot. 2 Story, Eq. Jur. Sec. 1021; 4 Kent, Com. 144; 1 Powell, Mortg. 17, 23; 3 Meri. 667.
     3. A legal mortgage of lands may be described to be a conveyance of lands, by a debtor to his creditor, as a pledge and security for the repayment of a sum of money borrowed, or performance of a covenant; 1 Watts, R. 140; with a proviso, that such conveyance shall be void on payment of the money and interest on a certain day, or the performance of such covenant by the time appointed, by which the conveyance of the land becomes absolute at law, yet the, mortgagor has an equity of redemption, that is, a right in equity on the performance of the agreement within a reasonable time, to call for a re-conveyance of the land. Cruise, Dig. t. 15, c. 1, s. 11; 1 Pow. onMortg. 4 a, n.; 2 Chip. 100; 1 Pet. R. 386; 2 Mason, 531; 13 Wend. 485; 5 Verm. 532; 1 Yeates, 579; 2 Pick. 211.
     4. It is an universal rule in equity that once a mortgage, always a mortgage; 2 Cowen, R. 324; 1 Yeates, R. 584; every attempt, therefore, to defeat the equity of redemption, must fail. See Equity of Redemption.
     5. As to the form, such a mortgage must be in writing, when it is intended to convey the legal title. 1 Penna. R. 240. It is either in one single deed which contains the whole contract -- and which is the usual form -- or, it is two separate instruments, the one containing an absolute conveyance, and the other a defeasance. 2 Johns. Ch. Rep. 189; 15 Johns. R. 555; 2 Greenl. R. 152; 12 Mass. 456; 7 Pick. 157; 3 Wend, 208; Addis. 357; 6 Watts, 405; 3 Watts, 188; 3 Fairf. 346; 7 Wend. 248. But it may be observed in general, that whatever clauses or covenants there are in a conveyance, though they seem to import an absolute disposition or conditional purchase, yet if, upon the whole, it appears to have been the intention of the parties that such conveyance should be a mortgage only, or pass an estate redeemable, a court of equity will always so construe it. Vern. 183, 268, 394; Prec Ch. 95; 1 Wash. R 126; 2 Mass. R. 493; 4 John. R. 186; 2 Cain. Er. 124.
     6. As the money borrowed on mortgage is seldom paid on the day appointed, mortgages have now become entirely subject to the court of chancery, where it is an established rule that the mortgagee holds the estate merely as a pledge or security for the repayment of his money; therefore a mortgage is considered in equity as personal estate.
     7. The mortgagor is held to be the real owner of the land, the debt being considered the principal, and the land the accessory; whenever the debt is discharged, the interest of the mortgagee in the lands determines of  course, and he is looked on in equity as a trustee for the mortgagor.
     8. An equitable mortgage of lands is one where the mortgagor does not convey regularly the land, but does some act by which he manifests his determination to bind the same for the security of a debt he owes. An agreement in writing to transfer an estate as a security for the repayment of a sum of money borrowed, or even a deposit of title deeds, and a verbal agreement, will have the same effect of creating an equitable mortgage. 1 Rawle, Rep. 328; 5 Wheat. R. 284; 1 Cox's Rep. 211. But in Pennsylvania there is no such a thing as an equitable mortgage. 3 P. S. R. 233. Such an agreement will be carried into execution in equity against the mortgagor, or any one claiming under him with notice, either actual or constructive, of such deposit having been made. 1 Bro. C. C. 269; 2 Dick. 759; 2 Anstr. 427; 2 East, R. 486; 9 Ves. jr. 115; 11 Ves. jr. 398, 403; 12 Ves. jr. 6, 192; 1 John. Cas. 116; 2 John. Ch. R. 608; 2 Story, Eq. Jur. Sec. 1020. Miller, Eq. Mortg. passim.
     9. A mortgage of goods is distinguishable from a mere pawn. 5 Verm. 532; 9 Wend. 80; 8 John. 96. By a grant or conveyance of goods in gage or mortgage, the whole legal title passes conditionally to the mortgagee, and if not redeemed at the time stipulated, the title becomes absolute at law, though equity will interfere to compel a redemption. But, in a pledge, a special property only passes to the pledgee, the general property remaining in the pledger. There have been some cases of mortgages of chattels, which have been held valid without any actual possession in the mortgagee; but they stand upon very peculiar grounds and may be deemed exceptions to the general rule. 2 Pick. R. 607; 5 Pick. R. 59; 5 Johns. R. 261; Sed vide 12 Mass. R. 300; 4 Mass. R. 352; 6 Mass. R. 422; 15 Mass. R. 477; 5 S. & R. 275; 12 Wend. 277: 15 Wend. 212, 244; 1 Penn. 57. Vide, generally,, Powell on Mortgages; Cruise, Dig. tit. 15; Viner, Ab. h.t.; Bac. Ab. h.t., Com. Dig. h.t.; American Digests, generally, h.t.; New, York Rev. Stat. p. 2, c. 3; 9 Wend. 80; 9 Greenl. 79; 12 Wend. 61; 2 Wend. 296; 3 Cowen, 166; 9 Wend. 345; 12 Wend. 297; 5 Greenl. 96; 14 Pick. 497; 3 Wend. 348; 2 Hall, 63; 2 Leigh, 401; 15 Wend. 244; Bouv. Inst. Index, h.t.
    10. It is proper to, observe that a conditional sale with the right to repurchase very nearly resembles a mortgage; but they are distinguishable. It is said that if the debt remains, the transaction is a mortgage, but if the debt is extinguished by mutual agreement, or the money advanced is not loaned, but the grantor has a right to refund it in a given time, and have a reconveyance, this is a conditional sale. 2 Edw. R. 138; 2 Call, R. 354; 5 Gill & John. 82; 2 Yerg. R. 6; 6 Yerg. R. 96; 2 Sumner, R. 487; 1 Paige, R. 56; 2 Ball & Beat. 274. In cases of doubt, however, courts of equity will always lean in favor of a mortgage. 7 Cranch, R. 237; 2 Desaus. 564.
    11. According to the laws of Louisiana a mortgage is a right granted to the creditor over the property of his debtor, for the security of his debt, and gives him the power of having the property seized and sold in default of payment. Civ. Code of Lo. art. 3245.
    12. Mortgage is conventional, legal or judicial. 1st. The conventional mortgage is a contract by which a person binds the whole of his property, or a portion of it only, in favor of another, to secure the execution of some engagement, but without divesting himself of the possession. Civ. Code, art. 3257.
    13.-2d. Legal mortgage is that which is created by operation of law: this is also called tacit mortgage, because it is established by the law, without the aid of any agreement. Art. 3279. A few examples will show the nature of this mortgage. Minors, persons interdicted, and absentees, "have a legal mortgage on the property of their tutors and curators, as a security for their administration; and the latter have a mortgage on the property of the former for advances which they have made. The property of persons who, without being lawfully appointed curators or tutors of minors, &c., interfere with their property, is bound by a legal mortgage from the day on which the first act of interference was done.
    14.-3d. The judicial mortgage is that resulting from judgments, whether these be rendered on contested cases or by default, whether they be final or provisional, in favor of the person obtaining them. Art. 3289.
    15. Mortgage, with respect to the manner in which it binds the property, is divided into general mortgage, or special mortgage. General mortgage is that which binds all the property, present or future, of the debtor. Special mortgage is that which binds only certain specified property. Art. 3255.
    16. The following objects are alone susceptible of mortgage: 1. Immovables, subject to alienation, and their accessories considered likewise as immovable. 2. The usufruct of the same description of property with its accessories during the time of its duration. 3. Slave's. 4. Ships and other vessels. Art. 3256.

In Anglo-Amer. law, the method by which a debtor (mortgagor) conveys an interest in property to a creditor (mortgagee) as security for the payment of a money debt. The modern mortgage has its roots in medieval Europe. Originally, the mortgagor gave the mortgagee ownership of the land on the condition that the mortgagee would return it once the mortgagor's debt was paid off. Over time, it became the practice to let the mortgagor remain in possession of the land; it then became the mortgagor's right to remain in possession of the land so long as there was no default on the debt.

john_connor's picture

Phuck 'em.  Dump your 401K, pay penalty and tax, and then pay off your mortgage.  In one fell swoop you eliminate two electronic "assets" that have been rehypotheticated 50X.

SwimmininNawlins's picture

They'll just enslave you with property taxes and such

Shizzmoney's picture

Agreed....hard to escape the tenticles of tax and fees and the middle man in general.

Basically, I'm trying to "delever" myself from as many fees as possible. 

rayduh4life's picture

you can never payoff real estate - the minute you don't pay those propert taxes, you'll find out who really owns your property.

LawsofPhysics's picture

What these paper-pushing fucks forget is that wages matter.

WarriorClass's picture

Legal immigration, due to the Immigration Reform Act of 1965, has done more damage to this country than illegal immigration could ever have hoped to do. Americans now think it's OK to replace the population of freedom loving Americans with third world collectivists, as long as it's "legal." Legal immigrants now out number the American population of 1965, which is why we have Obama for President.

LawsofPhysics's picture

Did you have a point?  That which cannot be sustained won't be.  Many already leaving.

crusty curmudgeon's picture

Right on, LoP.  One of my most-often used phrases these days:  Things that cannot go on forever have a tendency to stop. 

Combine that with "If it sounds too good to be true, it probably is" and you have two simple phrases that--if understood--could save a lot of grief.

JR's picture

The point is "the seeds of diversity are being sown by high rates of childbearing among America’s minorities…” while, in addition to the silence on the negative impact of Mexican immigration such as lower wages and unemployment for American citizens coupled with higher welfare costs and the disadvantages of a Third World culture mentality, there is the misinformation told about immigrants returning home in such large numbers that it makes a difference in the current population.

In California, 72 percent of students are of color, according to the Center for American Progress.  And four American states are majority-minority as of 2010: Hawaii, California, New Mexico and Texas.

In fact, according to a Carsey Institute in Spring 2010, The Changing Faces of America’s Children and Youth:

 “Last year (2009), 48.6 percent of the babies born in the United States were members of minority groups,"


“Recent U.S. Census Bureau projections indicate that by the middle of this century, non-Hispanic whites will cease to be a majority of the American population…”


crusty curmudgeon's picture

So?  What do you want to do, kill them all?  Send them to Africa and Mexico?

Your arguments about taking jobs has been so thoroughly discredited by intelligent economists (e.g., Mises, Hayek and Rothbard) as well as the few enlightened politicians like Ron Paul that it's not worth debating.

Liberty is always dangerous, but it is the safest thing we have. —Harry Emerson Fosdick

JR's picture

How dare you use the proven economic philosophy of Mises, Hayek, and Ron Paul to fit your upside down understanding of the effects of Third World immigration on Americans’ employment. It’s okay to be wrong but I think it’s insulting to suggest that Austrian economists would support the current corporate/banker propaganda regarding labor, wages and immigration. One of the most endearing characteristics of Austrian economics is its truthfulness against the prevailing lies of the globalist banker economists seeking to build a worldwide planatation-style economy.

The increase in non-skill immigration over the past few years has been phenomenal and the apparent effect on salaries, unemployment, welfare costs and cultural changes is like watching the sun come up; to deny that is to make one wonder about your motivation. Ask the unemployed in Southern California who took their jobs and if those jobs now pay more than before they lost them.

As for rascism, apparently you have Americans confused with La Raza.


"While the federal government neglects its constitutional responsibility to protect our borders, it continues to push mandates on the states to provide free education and medical care to illegal immigrants at a time when the states are drowning in debt.   This must not be tolerated any longer." -- Ron Paul


crusty curmudgeon's picture

Right.  Millions of unskilled laborers flooding in from everywhere are destroying the country.

crusty curmudgeon's picture

For the benefit of those who care about this issue, here is Mises himself on this issue:

"One must certainly be careful to avoid accepting the false interpretation that workers in lands where the natural conditions are more favorable for production can fare better by prohibiting immigration than they can if migration were free."  - Ludwig von Mises

"Without the reestablishment of freedom of migration throughout the world, there can be no lasting peace." - Ludwig von Mises

Perhaps JR will be so good as to point out how I've got this wrong.

As for Ron Paul, he simply believes the Executive needs to enforce the Constitution.  He's against the welfare state and giving freebies to immigrants.  He's not against immigration and he's very much opposed to shipping illegals back across the border.

Strider52's picture

In SoCalifornia, you don't have to visit Mexico anymore. It's already here.

Spastica Rex's picture

My best friend from high school didn't have children becasue they cramped his and his wife's life style.

Tell you what - they'll both be collecting SS as soon as they can.

Demographics are a bitch.


LMAOLORI's picture



Spastica that may be the case for your friends but in the late 1960's early 1970's the mainstream news almost nightly told Americans they were destroying the world by overpopulating. People who dared to have more then 1 or 2 children were looked down upon. It was akin to a giant brainwashing scheme to change the demographics because our government had no problems with bringing in immigrants who populated like rabbits.

Spastica Rex's picture

Look at the history of  "guest workers." Start with Rome.

Give me a reason why.

blunderdog's picture

Yes, Charles, it's all corrupt and rotten and "all for the banks," but you've got to remember that if the gummit DOESN'T continue propping up the banks, someone's going to have to come up with the $837 billion or so that they CLAIM to have "on deposit" from the citizens.

LawsofPhysics's picture

Correct.  Eventually the margin call cannot be papered over.  So long as the moral hazard is NOT addressed, nothing changes and possession is the fucking law.

Every financial crisis that the world has had since WWII has in essence been a bank run.  Notice how the duration between each crisis is shortening.

RSBriggs's picture

So why not just give the banks 837 billion directly?  That seems a lot cheaper than 16 Trillion.  Something doesn't make sense here....

LawsofPhysics's picture

debt slavery is more expensive than liberty and individual responsibility.

rayduh4life's picture

but what about those opportunity costs?  those negative externalities can be a bitch.

exi1ed0ne's picture

When you borrow for a house, you gain an asset (house) and a liability (loan).  The bank you borrow from gains an asset (loan) which then can be used as collateral for a loan creating an asset (money) and a liability (loan).  The secondary lender gains an asset (loan), and so on and so forth.  The only tangible asset is the original house, but it supports practically an infinite amount of debt.

Oversimplified, but that's why shit sucks with all the starving and bullshit, and we running out of fries and burrito coverings.

LawsofPhysics's picture

Debt is not a problem if the moral hazard is kept in check.  Moreover, what if someone has savings and they agree to loan that out.  It used to be this way before the fractional reserve bullshit.

I don't mind banks going back to the old model, the problem is then they can't steal from us anymore through printing and the eventual inflation that always comes.  At the heart of all this is the issue of value.  The paper-pushing fucks know that there is no value in their labor, hence they don't want to go back to the old model as they would actually have to work harder and do some due diligence.

calgal's picture

Yes, you are explaining fractional reserve banking and how the bank monetizes that asset 10 to 50 times and creates more loans on it

MBS /Derivatives - loan goes to shit and bank in deeper shit

Beware the Creatures from Jekyll Island....

chunga's picture

It's quite a predicament.

This report from the good folks at SEC is really something else.

A Staff Report of the Task Force on Mortgage-Backed Securities Disclosure

"Most pass-through MBS of each of Fannie Mae, Freddie Mac and Ginnie Mae are eligible to be sold in the "to-be-announced" or TBA market, which is essentially a forward or delayed delivery market. Only pass-through securities issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and comprised of single-family mortgages are eligible for trading in the TBA market. The TBA market allows mortgage lenders essentially to sell the loans they intend to fund even before the loans are closed."

Throw in a few "credit enhancements" and presto! The ponzi of all ponzis!

Parrotile's picture

A truly great scheme isn't it - bundle 'em up, and sell the RMBS for pennies to the dollar - then rinse and repeat ad infinitum. And every player along the way is able to skim their cut whilst the risk usually gets sold back to J6P at the end as an AAA Rated "Security".

Freakonomics at its best.

blunderdog's picture

It's a good idea and would work fine, except it would require the destruction of the current international financial system. 

All the other banks on Earth depend on the flows of money from these banks. 

WHEN the USA is prepared to dump the "current" dollar and float a new currency, I'm sure that's what they'll end up doing.

But floating a new currency will probably require world-war III--to make up for the massive ripoff of everyone who's got "assets" with our zombie-banks.

LMAOLORI's picture



The FDIC insures our money and recently our govt. allowed BOA to dump $75 Trillion of Derivatives there. Regarding the FDIC and how healthy it is keeping in mind it has the full faith and credit of the US (that's you and I in reality) behind it


Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval

FDIC To Cover Losses On $75 Trillion Bank of America Derivative Bets



Per the Q4 2011 FDIC Chief Financial Officer's report to the Board, published on March 30, 2012, the FDIC's Deposit Insurance Fund had a balance of $11.8 billion dollars.


Bank deposits in the United States at the same time are estimated to be between $8 TRILLION and $10 TRILLION. Let's be conservative and say the number is $8TTT.

11,800,000,000 divided by 8,000,000,000,000 equals 0.001475, which I will round UP to 0.0015.

That is read as "fifteen hundredths of one percent". It isn't one percent, it is fifteen hundredths of one percent. That is how much the FDIC is carrying to back all of those little signs on the teller windows that say "Each Depositor insured to at least $250,000. Backed by the full faith and credit of the United States government."