Who is the Fed helping?

A week ago the US Federal Reserve Bank of New York was directed by the Federal Open Market Committee to begin purchasing mortgage backed securities (MBSs) at the rate of $40 Billion per month. A pointer to one article on this is here.

I marvel at the American way of bailing out its people, or more accurately, bailing out its people who head large financial institutions.

When there was a crisis, based largely on MBSs and their derivatives, there was no consideration of simply telling mortgage lenders to keep the teaser interest rates, and that the Fed would make up the difference. This would have forestalled the foreclosures and kept the economy running. Instead, the large financial institutions were bailed out as rising interest rates drove record foreclosure rates which made the properties under these mortgages “underwater”, that is, worth less than their mortgaged value.

Note that the homeowners involved got nothing but eviction notices.

Fast forward to 2012. The Fed is in effect covering the backsides of those institutions holding mortgage backed securities. This is required because the underlying mortgages are in increasing default.

So, now for the dumb question: Who, by this course of action, is the Fed helping? Could it be the same group that benefited in 2008? And went back to their large bonuses in 2010 and 2011?

For a second dumb question: if the homeowners were supported instead, would the value of those mortgages recover?

Third and last dumb question. If the home values canNot recover, were the homes grossly overvalued, and thus grossly over-mortgaged, when they were financed?

Who is the Fed helping, and why?

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