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The Fed's $2.7T mortgage problem

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Re: The Fed's $2.7T mortgage problem

#41

Post by themitigating »

konfusinomicon wrote: post #11
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."

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?

They blame government spending

Re: The Fed's $2.7T mortgage problem

#42

Post by ethbr0 »

s1artibartfast wrote: post #3

I read the article twice an I don't understand the challenge posed by leaving the mortgages on the balance sheet. I don't think that the fed has wo worry about freeing up the capital to relocate because they printed it into existence in the first place. They also don't want to do more QE because the market is already overheated.

The hazard of leaving it on the balance sheet is the Fed having massive exposure to something that they probably shouldn't.

Which isn't really a problem... because it's impossible for the Fed to get called in the way a bank would if there's a housing crash.

But is probably less than ideal... as it's just weird to have the Fed holding that much mortgage debt directly.

Re: The Fed's $2.7T mortgage problem

#43

Post by themitigating »

__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

That doesn't mean it's right and most people haven't researched this they are just told it by the media

Re: The Fed's $2.7T mortgage problem

#45

Post by ZoomerCretin »

kodah wrote: post #31
readthenotes1 wrote: post #6

Earlier quoted context omitted.

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.

There's another option that the fed isn't considering: let Congress find a way to force businesses out of congested areas where houses aren't and won't be available any time soon. There's also financially incentivising remote work and providing incentives to move away from major cities. There's still a supply shortage in building homes to deal with, but that'd at least solve a problem for a good chunk of folks.

This doesn't fix the underlying problem. The vast majority of local governments make it very expensive or outright impossible to add significant amounts of housing via zoning and density bans. Pushing businesses into other areas will simply drive up housing prices in other markets, not to mention accelerate suburban climate arson.

The solution is to remove tariffs on imported wood to make new housing cheaper and to punish municipalities with racial segregationist-era housing/zoning policies.

Re: The Fed's $2.7T mortgage problem

#46

Post by throwaway0a5e »

redisman wrote: post #33
JumpCrisscross wrote: post #17

> it will incur big financial losses that reduce the funds the central bank returns to the Treasury...expect officials to face tough questions from Capitol Hill to explain why they've lost billions of dollars on behalf of the American people This isn't how it works. No doubt, some will try to spin it that way. But the Fed balance sheet's gains and losses are an accounting artefact. (It will always make money when low…

The housing market is in a mega bubble. Why exactly does it need support to push it even further into madness?

The bigger the bubble the harder it pops. The harder it pops the more damage it does. The more damage it does the better it is for those who didn't buy into the madness. And I say this as a homeowner.

Re: The Fed's $2.7T mortgage problem

#47

Post by JumpCrisscross »

redisman wrote: post #33
JumpCrisscross wrote: post #17

> it will incur big financial losses that reduce the funds the central bank returns to the Treasury...expect officials to face tough questions from Capitol Hill to explain why they've lost billions of dollars on behalf of the American people This isn't how it works. No doubt, some will try to spin it that way. But the Fed balance sheet's gains and losses are an accounting artefact. (It will always make money when low…

The housing market is in a mega bubble. Why exactly does it need support to push it even further into madness?

> Why exactly does [the housing market] need support ?

For "homebuilders, real estate agents, and other influential industry groups," there is unlikely an upper bound to the support they feel they need.

Re: The Fed's $2.7T mortgage problem

#48

Post by kmonsen »

anm89 wrote: post #39
s1artibartfast wrote: post #3

I read the article twice an I don't understand the challenge posed by leaving the mortgages on the balance sheet. I don't think that the fed has wo worry about freeing up the capital to relocate because they printed it into existence in the first place. They also don't want to do more QE because the market is already overheated.

If they can't kill inflation by killing equity markets and bonds the last target left is the housing market. So if you believe that their true goal is to kill inflation at this point, which I more or less do, than the thing the Fed feels like it needs to do is to target housing prices directly and their best lever for that is the MBS on the balance sheet.

But if the inflation is not due to overconsumption in the US, but about global problems with supply side issues on the front and China in lockdown not helping at all, how does it make sense to cause a housing crash?

I certainly think the fed should stop to build the bubble, but it should also not go all in and crash everything.

Re: The Fed's $2.7T mortgage problem

#49

Post by aidenn0 »

dvt wrote: post #30

> 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 CDO…

If housing prices deflate more than 20%, nearly everyone who bought a house with 20% down in the past 2 years will be underwater, no?

Re: The Fed's $2.7T mortgage problem

#50

Post by m348e912 »

anm89 wrote: post #10

I was talking about this with a friend today. I think if the Fed announced they were selling agency MBS as part of their QT program we would see a paradigm shift in markets. Like limit down kind of days. I think that's what the punch bowl being taken away truly looks like. And if the S&P down 35% doesn't get inflation down, then I think that's probably next on the list.

Just curious, how does the Fed selling Freddie Mac and Fannie Mae/Ginny Mae mortgage backed securities cause a shift in the markets? What's the likelihood the Fed would actually do something like that?
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