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The Fed's $2.7T mortgage problem

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Re: The Fed's $2.7T mortgage problem

#21

Post by onlyrealcuzzo »

jjoonathan wrote: post #4

Problem? No, it's working as designed: as a plausibly deniable mechanism to print trillions for rich people. Meanwhile, inflation will be blamed on the billions printed for poor people. "Balance sheet that never rolls off" is very much in the same genre as "loan that is actually a grant" and "financing tax cuts with debt."

Define inflation.

Assets have been artificially inflated for a very long time due to QE and low interest rates and the Fed's balance sheet.

If that were single handedly the reason for corn and lumber to get more expensive (general inflation) - we should've seen that a long time ago.

There's a lot going on - and it's hard to blame everything on the Fed. Rising inequality? Sure. General inflation? Not convinced.

Re: The Fed's $2.7T mortgage problem

#22

Post by realce »

readthenotes1 wrote: post #6
unchocked wrote: post #2

Given that there's nothing forcing the Fed to unload these mortgages, the option of putting them on the market (thus driving commercial mortgage rates higher) seems like a policy lever that will be good to have, cooling real estate inflation selectively separate from the federal funds rate.

Driving rates higher won't cool inflation except by raising prices - which is inflation. They want to stifle the demand so as to match supply better, but when it's a supply shock and the United States is short something like 3 million houses, it seems a fairly punitive and misguided way to approach solving the problem.

Is this what you would do if you wanted certain classes of people to capitulate on their "American Dream" and turn it into "at least I can rent a house from Goldman Sachs" for some reason?

Re: The Fed's $2.7T mortgage problem

#23

Post by [deleted] »

jjoonathan wrote: post #4

Problem? No, it's working as designed: as a plausibly deniable mechanism to print trillions for rich people. Meanwhile, inflation will be blamed on the billions printed for poor people. "Balance sheet that never rolls off" is very much in the same genre as "loan that is actually a grant" and "financing tax cuts with debt."

[deleted]

Re: The Fed's $2.7T mortgage problem

#24

Post by nimbius »

candiddevmike wrote: post #5

The recession in 2008 was never really fixed, we just kicked the can down the road.

IDK why this is being downvoted...poster is right. QE never ended in 2008 or when it peaked in 2010...and the closest we came to trying was in 2010 which sparked a flash crash and was immediately shelved as an option in favour of three more rounds of QE on the house.

from TFA: "The Fed's pandemic actions fueled a housing boom"

well thats part of the issue (pulling a mini tarp), but the other half of the story is the extraordinary steps taken way back in 2010 to keep people in their homes in the first place. The government wanted cake and they wanted to eat it too. Banks that over-leveraged and pandered predatory loans were never allowed to crash and burn; they were almost all bailed out through TARP. homeowners in turn who accepted these loans were also often gifted with TARP assistance that kept them in overvalued homes. auto-makers without customers were never made to reform, only a few token concessions and mergers here and there for companies with a track-record of dismal performance, and a well published cosmetic defect when executives from these conglomerates came with dog-eared pockets to congress on private jets.

Effectively, when the market ran out of gas, the federal government began expectorating ether into the air scoop of the economy like a wasteland war boy effectively trying to outrun any crash that didnt focus entirely on the poorest members of society.

Re: The Fed's $2.7T mortgage problem

#26

Post by stusmall »

__john wrote: post #12
konfusinomicon wrote: post #11

Earlier quoted context omitted.

I dabble in news sources from both sides of the aisle and I've not heard the opinion that inflation is a result of poor people, only that its the result of a perfect storm of the pandemic and an unjust war halfway across the world, which mostly makes sense... who is blaming the poor?

Everyone knows inflation is because of the stimmies. edit: /s

I guess "everyone" is wrong. The huge influx of money is part of it but the current inflation doesn't have just one cause. There is a huge spike in energy costs partially from the war in Ukraine, partially from a decrease in production by the prices cratering in 2020 and partially from an increase in demand. There are huge supply chain problems everywhere. Massive labor shortages. I'm sure I'm missing some others. This isn't a simple problem with a simple cause.

Re: The Fed's $2.7T mortgage problem

#27

Post by ethbr0 »

candiddevmike wrote: post #5

The recession in 2008 was never really fixed, we just kicked the can down the road.

The recession of 2008 was absolutely fixed, in that bank collapses were prevented, highly leveraged products based on bad loans were drained from the balance sheets, underwriting was tightened up, and economic activity rebounded.

That fix was just never paid for, in terms of shrinking Fed balance sheets and renormalizing rates.

Re: The Fed's $2.7T mortgage problem

#28

Post by anm89 »

javert wrote: post #8

Kind of a silly article. When the Fed sells enough bonds, interest rates go up. It doesn't matter if they sell mortgage-backed securities or something else. Selling these does not effect the housing market any differently from the Fed selling some other bond.

Dead wrong. Selling MBS affects the incentives of mortgage initiators in a vastly different way than selling Bonds. It's a direct pipeline to affecting bottom line mortgage rates for consumers as opposed to a highly indirect one. When bottom line mortgage rates for consumers go up, the housing market is affected directly and immediately.

Re: The Fed's $2.7T mortgage problem

#29

Post by vkou »

onlyrealcuzzo wrote: post #21
jjoonathan wrote: post #4

Problem? No, it's working as designed: as a plausibly deniable mechanism to print trillions for rich people. Meanwhile, inflation will be blamed on the billions printed for poor people. "Balance sheet that never rolls off" is very much in the same genre as "loan that is actually a grant" and "financing tax cuts with debt."

Define inflation. Assets have been artificially inflated for a very long time due to QE and low interest rates and the Fed's balance sheet. If that were single handedly the reason for corn and lumber to get more expensive (general inflation) - we should've seen that a long time ago. There's a lot going on - and it's hard to blame everything on the Fed. Rising inequality? Sure. General inflation? Not convinced.

My guess is rising wages.

When wages go up, it can either go at the expense of profits, or at the expense of prices (Or, most usually, both). The labour shortage in the pandemic created upward wage pressure, which added to existing pressure[1] caused by rising housing/healthcare costs.

Notice how interest rates went up, as unemployment hit an all-time low? Capitalists hate low unemployment, as it causes wages to go up. Raising interest rates cools off the market, reduces the number of speculative investments, and increases unemployment.

There's a reason that the government always wants a few million people to always be jobless. It puts the brakes on wage growth.

[1] This is most notable in resort towns. As housing prices went up, nobody who works a service job can afford to live in them anymore - so all the workers pack up, and move to the city. As a result, businesses either have to raise wages, or shut down, or significantly reduce their hours. For some reason, tech folks vacationing in their lakeside dachas aren't keen on putting in a few hours at the local grocery.

Re: The Fed's $2.7T mortgage problem

#30

Post by dvt »

> The Fed's pandemic actions fueled a housing boom. As it tries to withdraw that support, it could be bad news for housing — and the Fed's standing on Capitol Hill.

I think this article is a bit of a nothingburger. Of course QT has the opposite effect of QE, that's the entire point. The 2020 housing boom will not blow up like in 2008 because today's mortgage backed securities are much more stable than the C-tier CDOs of yester-year, as long as the labor market is doing well (which it seems like it is[1]) and folks can afford their mortgages. Of course house prices may deflate (~20%?) purely out of demand for such high prices decreasing, but imo it's unlikely we will see mortgages go underwater, and therefore the Fed doesn't really have a problem on their hands.

[1] https://www.nytimes.com/2022/05/06/business/economy/jobs-rep...

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