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The Fed's $2.7T mortgage problem

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Re: The Fed's $2.7T mortgage problem

#51

Post by hanoz »

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…

> Nobody likes rate rises

I like rate rises. And I'd like a central bank run by people who didn't default to "nobody likes rate rises" thinking.

Re: The Fed's $2.7T mortgage problem

#52

Post by gopher_space »

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.

How long ago would you have wanted to see lumber go up for that to be an indicator?

Re: The Fed's $2.7T mortgage problem

#53

Post by javert »

anm89 wrote: post #28
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.

I don't see why that would be the case. Enlighten me.

If the market will pay yield X for a long-term bond of a certain duration, banks can make money by offering mortgages for X plus some margin.

The Fed selling MBSs should just depress yields in general.

Re: The Fed's $2.7T mortgage problem

#54

Post by gmadsen »

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…

how independent is it really if they are printing money to buy treasury bonds?

Re: The Fed's $2.7T mortgage problem

#55

Post by ransom1538 »

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…

Agreed. Home buyers 2017+ are pretty leveraged though. Any labor tightening will for sure increase foreclosures in this group. I don't see a run on mortgages. It is funny how people map the past to the future.

Re: The Fed's $2.7T mortgage problem

#56

Post by Areading314 »

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…

If the Fed "loses" money by buying high and selling low, it means dollars have been created with no mechanism by which they can be retired, because the Fed has no corresponding assets they could use to exchange them for. This creates permanent inflation/dilution of the currency.

Re: The Fed's $2.7T mortgage problem

#57

Post by aeternum »

ethbr0 wrote: post #27
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.

A good part was paid for. The bank bailouts for example made the Fed some not insignificant amount of money.

Re: The Fed's $2.7T mortgage problem

#58

Post by notch656a »

hanoz wrote: post #51
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…

> Nobody likes rate rises I like rate rises. And I'd like a central bank run by people who didn't default to "nobody likes rate rises" thinking.

Nah I prefer to park my cash in highly volatile equities indexes, a basket of commodities fluctuating madly due to pandemic related effects, or real estate as a hail mary that my wealth won't be inflated to hell. Having central bank rates at 5+% below inflation is basically a nice way of asking people to desperately pump money into any speculative asset they can find before the roaring fire behind it incenerates it.

Re: The Fed's $2.7T mortgage problem

#59

Post by qeternity »

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…

> 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

CDOs did not blow up the housing market. The housing market blew up the CDO market.

In 2007, people said the exact same thing, and by every single metric the housing market is far more extended than it was then.

Re: The Fed's $2.7T mortgage problem

#60

Post by JumpCrisscross »

Areading314 wrote: post #56
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…

If the Fed "loses" money by buying high and selling low, it means dollars have been created with no mechanism by which they can be retired, because the Fed has no corresponding assets they could use to exchange them for. This creates permanent inflation/dilution of the currency.

> dollars have been created with no mechanism by which they can be retired, because the Fed has no corresponding assets they could use to exchange them for

Open market operations are one among many of the Fed's policy tools [1].

[1] https://www.frbsf.org/education/teacher-resources/what-is-th...

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