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The Fed's $2.7T mortgage problem

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Re: The Fed's $2.7T mortgage problem

#91

Post by jjoonathan »

Mountain_Skies wrote: post #20
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?

It appears that one side is fantasizing about what they'd like the other side to say so they can attack on that. Of course, we're talking about a country of over 330 million so it is possible to find someone somewhere that holds any given opinion even if it's not widely shared.

The "stimmies caused inflation" narrative doesn't just exist, it's widespread on the right. If you aren't hearing it, you probably have a small window. Reading Ground, for example.

In any case, the team sports side of this is much less interesting than the part that transcends team sports: both sides devote more media attention to the smaller money printers. Not by a small margin, either. That's an interesting choice. Does submarine go blub? Or does making the big money printer boring and complicated completely cloak it from view? Either way, it's an impressive multi-trillion dollar sleight of hand.

Re: The Fed's $2.7T mortgage problem

#92

Post by riskneutral »

throwaway0a5e wrote: post #46
redisman wrote: post #33

Earlier quoted context omitted.

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.

It would be ironic if a second housing bubble collapse causes a second financial crisis. It's entirely possible. It could start outside the US, in other Western countries where real estate prices have reached completely insane levels. In Canada, if there was a housing "bubble pop" then it would be catastrophic for the entire economy and financial system. It would not really be better even for those who didn't buy into the madness, unless they've been sitting on a hoard cash the whole time and buy at the right time. Most people never had the cash to buy into the madness, and if the music stops then they lose their job and a significant portion of their investment savings and are probably unable to take advantage of the opportunity. The rich always get richer, and the poor always get poorer, even in a financial crisis.

Re: The Fed's $2.7T mortgage problem

#93

Post by medvezhenok »

ZoomerCretin wrote: post #35
JumpCrisscross wrote: post #14

Earlier quoted context omitted.

> rates higher won't cool inflation except by raising prices - which is inflation Rates rising drives prices down. Of the mortgages on their books. And of the homes collateralizing them.

You're on an island with five chairs. There are four people. Everyone has a chair. Add six people. There are now five chairs and ten people. How can you manipulate the prices of chairs such that all ten people can have their own chair? Artificially lowering the prices of chairs does not solve the underlying issue: There are not enough chairs for everyone that needs one. By treating housing price surges as excessive d…

You're missing the people who have multiple chairs and are sitting on chairs hoping that price goes up who would be incentivized to sell (look at supply coming online as mortgage rates rise - and any similar pattern - i.e. 2018).

Price always going up makes chairs attractive to hold, which results in misallocation of chairs - ideally you want them to go to whoever wants chairs the most, not whoever grabbed a chair first.

Yes, the best answer is to make more chairs, but that is not something that the FED has much control over (it's federal/state/local zoning policy and regulation which prevent more supply).

The question the FED can address is not "how can we make sure everyone has a chair", but rather "how do we make sure that the existing chairs go to the people that need chairs the most"

Re: The Fed's $2.7T mortgage problem

#94

Post by eftychis »

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.

Yeah I also don't buy the approach and commentary. Rates need to go up sure, but not with this much funfare. Killing the patient in the process to keep inflation in check makes little sense. And then there is the demand elasticity. How many people here are going stop using gas to go to work or stop eating to push prices down? Similarly with the baby formula -- where they suggested throwing money at the problem of lacking formulas: there is just not enough at retail for people to buy, doesn't matter how much money you have. What is the Federal Reserve going to do: tell babies to not eat?

This is misguided politic theatrics, that causes even more panic and over consuming due to panic, which leads to further stress and supply issues.

Re: The Fed's $2.7T mortgage problem

#95

Post by kodah »

ZoomerCretin wrote: post #45
kodah wrote: post #31

Earlier quoted context omitted.

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 p…

I live in the Bay Area. Where are you going to add houses here that aren't protected land? Zoning isn't even a thing here; I live right behind a Denny's. Some of your assumptions seem vastly off.

There are places like Mountain View that don't allow building above four stories, which is crap, but stuffing people into towering buildings where they're not allowed to own the thing they're living in or immediately priced out of it (which serves as an investment) doesn't solve the housing crisis.

Edit:

I had a bit of a snarky reply, and I apologize if you read that. I pay a little over $3.5k for a house (that allows a big dog); if I lose this place I'll pay over $4k in rent per month and that number goes up by the month. I'm being forced to come into an office, which requires me to live near by. If I can't live near by, then I have to accept a lower paying job. Do you see the complexity of this issue?

Re: The Fed's $2.7T mortgage problem

#96

Post by king-geedorah »

tempfs wrote: post #66
ethbr0 wrote: post #27

Earlier quoted context omitted.

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.

You can't halt a bank collapse, but you can postpone it and attempt to reduce the impact with inflation which is exactly what has happened. Additionally, if you don't address the lack of regulation that allowed the collapses in 2008, which we absolutely did not, it will keep happening and those future occurrences will grow in severity. Since now, in order to 'make money', the frauds have to be bigger, faster, and mor…

What do you mean you can't halt a bank collapse? That's exactly what we did. There was a solvency issue when panic ensued after MBS's blew up and we were able to limit a domino effect of bank failures after moving fast to inject capital into the system.

Do you mean it in a philosophical sense similar to the idea that every company will eventually go bankrupt given enough time? Any major crisis is capable of bringing down banks, its inherently a feature of fractional reserve banking but the benefits have so far outweighed the risks.

Re: The Fed's $2.7T mortgage problem

#97

Post by m348e912 »

camnora wrote: post #85
m348e912 wrote: post #50

Earlier quoted context omitted.

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?

An increase of MBS offered on the market will cause mortgage rates to rise because there's too many loans for sale and not enough buyers. Buyers will demand higher and higher rates to make it worth their while.

Someone/something has to be buying the MBSs today, wouldn't selling them on the market just increase potential buyers? Sorry that I'm not following.

Re: The Fed's $2.7T mortgage problem

#98

Post by anm89 »

m348e912 wrote: post #50
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?

It's basically trying to kill housing demand via interest rates. Selling MBS is a much more direct effect on mortgage rates than something like the fed funds rate

Re: The Fed's $2.7T mortgage problem

#99

Post by kmonsen »

anm89 wrote: post #84
kmonsen wrote: post #48

Earlier quoted context omitted.

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.

You can kill inflation with demand side strategies, even if the root cause of the recent changes in inflation are supply side. Imagine an ad infinitum example. Let's say the price of gas goes to $1M a gallon. The fed then somehow removes every dollar from the economy. The price of gas is still going to be approaching zero when denominated in dollars after demand is forced to zero(in reality the price of gas would jus…

Only if you are the only country in the world (or bigger than the rest combined). That being said all of the central banks are doing the same so maybe it works that way.

If someone want they can get a free lunch, no need to increase the rate but everyone else lowers inflation for them.

Re: The Fed's $2.7T mortgage problem

#100

Post by kmonsen »

camnora wrote: post #82
kmonsen wrote: post #48

Earlier quoted context omitted.

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.

I think the idea is that the Fed is trying to tamper demand by softening the economy. Lower demand will inevitably help prices. It doesn't help much though if we get a "rough landing" and people can't afford food/housing because they're out of a job.

It is not true that lower (local) demand will inevitably lower prices. For example if Costa Rica lower oil demand to almost 0 by saying only 1/1000 people could buy gas from now on it would not change the local gas price at all. If anything it could go more up as the fixed costs in infrastructure would be more expensive for each unit sold.
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