Fed looking to purchase $500 billion in mortgage backed securities (MBS) in 2009

December 31, 2008 by · Leave a Comment
Filed under: Stock Market News 

Buying securities of overpriced homes is not going to really solve anything except create more debt through the issuance of more treasuries.  Asset prices have to come down over time so these purchases will just bailout the owners of these securities and foot the U.S. taxpayer with the bill, while the MBS owners will now have good money that was thrown at bad assets.


The U.S. Federal Reserve on Tuesday moved forward aggressively with an effort to drive down mortgage costs, setting a goal of buying $500 billion (346.4 billion pounds) in mortgage-backed securities by mid-2009.

The central bank said it would start buying the securities in early January under a program announced last month. When it announced the program, mortgage rates dropped in anticipation of the purchases.


Still, some analysts on Tuesday expressed surprise with how vigorously the Fed was pledging to act and the news propped up prices for MBS in very thin trade.


“When they are buying along the lines of $80 billion to $100 billion a month, if they’re going to do it in six months, they have to buy everything they can get their hands on,” said Kevin Cavin, a mortgage strategist at FTN Financial in Chicago.


“It will push up prices and tighten spreads and push down primary mortgage rates,” he said.


The Fed selected investment managers BlackRock, Goldman Sachs Asset Management, PIMCO, and Wellington Management to implement the programme.


The mortgage-buying program is part of a sustained government effort to help the United States withstand a severe credit crunch and deep housing downturn that have tipped the economy into recession and damaged activity around the globe.

Source: Reuters


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