Wall Street Journal Reports
Written April 3, 2009 at 1:00 AM EST by Danish FX
WSJ “Heard on the Street”: Fed’s bailout of the mortgage sector is seen as popular and effective, but potentially highly destabilizing going forward
- Fed is buying low-rate mortgages guaranteed by Fannie and Freddie, having purchased $250B of assets that could grow to $1.25T. As a result, mortgage rates dive to historic low, housing slowdown sees some traction, and refinancing activity is high
- Immediate political and social benefits include backstop in falling housing prices and added liquidity for mortgage holders leading to less resistance of federal bailout of homeowners facing foreclosure. Moreover, the buying is easy in that the Fed requires no Congress approval, but can print the needed funds
- Long term carries serious risks, including: Credibility of the Fed, rising inflation with expanded balance sheet, potential losses on having to sell higher-yielding mortgages back to investors, learned dependence on the Fed bailout every time an asset bubble emerges, and possible Congressional scrutiny over the Fed role
- Immediate political and social benefits include backstop in falling housing prices and added liquidity for mortgage holders leading to less resistance of federal bailout of homeowners facing foreclosure. Moreover, the buying is easy in that the Fed requires no Congress approval, but can print the needed funds
- Long term carries serious risks, including: Credibility of the Fed, rising inflation with expanded balance sheet, potential losses on having to sell higher-yielding mortgages back to investors, learned dependence on the Fed bailout every time an asset bubble emerges, and possible Congressional scrutiny over the Fed role
Categories: Forex News | Tags: WSJ
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