Glad to see this discussion got back on track. Mr. Tao is clearly confused on many fronts. I disagree that the bubble was intentionally created. There were a series of events that benefited from fortuitous timing, coupled with some technology and basic fear and greed...and it all came together. We already had a runup in real estate, then the Feds tamped down on the lack of loans to minorities from 2001 - 2003 by threatening banks. The resulting C, D, E paper got tranched up and ran into a securitization boom that was just getting legs. They start slicing and dicing and repackaging...but wait it looks risky, let's buy some CDS's to hedge our CDO's. Since real estate was going up 2% a month, who needs to worry about income verification. The Fed did raise rates, but it was too little too late. Can you imagine the outcry from all the real estate speculators if the Fed had shut down the boom? I'm not sure what could have been done that wouldn't have the country rioting over the gov't taking their beloved inflated real estate values.
1. I've seen that. But in regards to the MBS purchases for example, it lists any MBS guaranteed by Freddie, Fannie or Ginnie, but what, say, is the default rate on these? Because when I look at default rates for Freddie and Fannie, I get a little concerned, ya know? If that's the stuff the Federal Reserve is purchasing...the quality is the question - that was my original question. Default rates for Freddie/Fannie 2. I'm with you. Encourage more spending and borrowing. Smart, considering what we just went through. You do realize, however, that Bernanke also said that he understands that assets (the stock market, for instance) go up as a result of QE. 3 - ok, if I show you proof where the Fed bought newly issued notes, will you concede the point? Because I assure you, I can do it. Additionally, is there not a fee paid back to the primary dealer for this process? Lastly, if both of the above are correct (assuming you agree that it does happen), did what I say originally not say exactly that, just in a simplistic manner?
None of what problem I was concerned about? I said the same thing you did - they (the Fed) gave to the banks to get them to lend, but the banks haven't done so. How are we not aligned on this point?
What fronts exactly am I confused on, again? Regarding the rest of your commentary, the Fed didn't even see the housing bubble - in fact Bernanke is on record saying there wouldn't be one. Greenspan was encouraging ARMs. You're not sure what could have been done?
Yes, the Fed was so successful at keeping genies in the bottle so many times before, we should absolutely have faith they will do it again. Er...wait... http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html I'll try to find the Ben Bernanke 60 minutes clips. Friggen hilarious. No we won't print (first episode) and the second interview (what we're effectively doing is printing)...
i believe those numbers are old. I looked over Fannie's latest reports a couple wks ago. The numbers are a lot better. I believe the rate was about 3 percent or so.. and quite a bit higher on their legacy product. i think it was about 9. There is still a huge problem with delinquencies. Yes. I believe the majority of the loans that are defaulting are held by other investors in the secondary market. But, Fannie and freddie didn't back the hardcore subprime loans.. for example. the "ninja loans". Many of those are at BOA.. and others.. However, think of this.. The treasury pretty much went in and took over freddie and fannie. Now they trying to get these "bad loans" off the books so that they can build a cleaner book of new ones. So would you rather fannie and freddie (treasury) hold these loans or would you rather the Fed buy them up and sell them to investors on the secondary market.. is what it comes down to.. They've actually sold some of these already.. [/img] [/B]
I would obviously want the Fed to sell them if that would be the case. But still, near 1T in MBS. That money was paid to the banks and essentially "printed". Where does it sit now? In reserves. Any tightening by the Fed would not take into account this money that was "Created". And that was my only point in all of this. The Fed would have to reverse this - or sell them back to someone to drain the money from the system before tightening to combat inflation, when it takes hold. And rather quickly, too. As for the bad loans being on the books at BoA and other banks, this is one of the reasons they are holding on to such large reserves. Eventually those will have to be marked to market (something they got a waiver on from FASB during the crisis and was never reversed).
Actually.. by selling the reserves.. they would be tightening. And, they don't have to do it quickly. But, it just sucks to see the credibility of the nation go down. If it makes you feel any better... Other nations have greater balance sheet to gdp ratios. http://macromon.wordpress.com/2012/12/04/ballooning-of-central-bank-balance-sheets/ I know it doesn't make it "right". But, we are in a global mess.. As for BOA.. I'm not sure if they still hold the bad loans. They might have sold them off.. yet still service them.. I know banks had to pass stress tests. .however strict that standard is. I'm not fully aware.. I've not looked over BOAs stuff in years.. is what I'm getting at..