[Konig]

Bloomberg.com: Worldwide

Im not sure how this will turn out, but i have only one question. If the fed stop cutting rates and buy up those mortgage, doesn't it make USD depreciate even more since holding USD effectively means holding those degraded mortgage?

I hope this discussion will not turn into a political one, I just wish to know the financial consequence for the global investors out there.

Thank You

 

[AlanY]

The Fed is basically out of interest rate bullets. Look at the current yield on short term T-bills:
Bloomberg.com: Rates & Bonds
As I'm posting this, the yield is 0.05% on 3 month bills and 0.01% on 6 month bills. You're reading that right... 0.05 percent... one twentieth of one percent. Basically zero. It's never happened before (except during the Depression, where amazingly rates did go negative several times). People just want a safe place to put their money.

So they may try something unprecedented like buying mortgage paper, but I don't see how. They don't have anywhere near enough money to offset the kinds of losses we're seeing in real estate. On a large enough scale to be effective, the Federal government would have to be involved. Professor Roubini is advocating some kind of action here though, with the catch that the paper be bought at a tremendous discount:
RGE Monitor
No one's going to like that either. There really is no way out, other than letting this whole mess run its course.

I'm more convinced now than ever that we'll see deflation.

 

[Happy Camper]

I started a thread on the economy last spring and it was removed. People don't just walk away from their homes for the hell of it. There are other economic factors influencing the housing market. Energy, medical, food, taxes are all taking it's toll. Insurance denial of medical claims and turning people away for coverage is also affecting budgets. Banks taking full advantage of the public ignorance for arms and balloon mortgages are going to cost them. People are paying more for a moderately priced car than our parents did their home. Time to pay the cost.

 

[breakfastchef]

Quote:

Originally Posted by Happy Camper /img/forum/go_quote.gif People don't just walk away from their homes for the hell of it.

No, people don't walk away from homes for the hell of it, but if they owe more than the home is worth, it may be a good business decision to walk away. Just like the lender made a business decision to make the loan, both parties entered into an agreement with risks.

 

[Roam]

Know your laws. Under the Federal Reserve Act, the Fed cannot buy mortgages, period, end of story. Unless and until Congress amends the Federal Reserve Act, it is blatantly illegal. This is why Congress is now probing the Bear Stearns buyout, the Fed overstepped its bounds and the deal will get whacked if the Congress-critters do their bloody jobs.

 

[Konig]

Quote:

Originally Posted by Roam /img/forum/go_quote.gif Know your laws. Under the Federal Reserve Act, the Fed cannot buy mortgages, period, end of story. Unless and until Congress amends the Federal Reserve Act, it is blatantly illegal. This is why Congress is now probing the Bear Stearns buyout, the Fed overstepped its bounds and the deal will get whacked if the Congress-critters do their bloody jobs.

you mean people still care about laws these days?

 

[cbw]

Quote:

Originally Posted by Roam /img/forum/go_quote.gif Know your laws. Under the Federal Reserve Act, the Fed cannot buy mortgages, period, end of story. Unless and until Congress amends the Federal Reserve Act, it is blatantly illegal. This is why Congress is now probing the Bear Stearns buyout, the Fed overstepped its bounds and the deal will get whacked if the Congress-critters do their bloody jobs.

If it takes Congress doing their job I wouldn't hold my breath.