Saturday, March 22, 2008

Bank of England, Federal Reserve Deny Mortgage Security Buyout Plan

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Where there is smoke there is fire. Don't believe it is NOT being talked about.

I said last summer/early fall of last year, this will be the eventual end game - direct purchases of home mortgages (the Federal Reserve currently can't do it by law) but by some arm of the government.... it sounded ludicrous then. I mean back in August everyone was assuring us this was 1x writeoffs - the correction in financials was the "kitchen sink quarter" and to "buy, buy, buy!". "Subprime is contained". But as the credit morass spreads, the depth of the web of interconnected dominoes is revealed, and the desperation by public officials, both elected and non-elected, in a presidential year increases, I thought this would be the likely "end of the cycle". In the past 14-21 days it is starting to pop up as a "solution" from the mouths of many others. As always, I'm early....

Once again, let me say when (ahem)/if this happens, the stock market will probably put on a 15-20% move instantly as we then move to socialize all losses from the risk takers to the tax payers. Wall Street will win again because the financial system can now take any risk they want, as they cannot be allowed to fail.
  • LONDON/WASHINGTON (Reuters) - The Federal Reserve and Bank of England denied a report on Saturday that they were in talks over possibly using public funds to make mass purchases of mortgage-backed securities to ease the global credit crisis.

  • However, the Bank of England said it was considering a number of other, unspecified options to address the turmoil in financial markets, which has continued despite the injection by central banks of billions of dollars of liquidity and cuts in interest rates.

  • The Financial Times, without citing sources, said central banks on both sides of the Atlantic were in talks about the feasibility of buying up mortgage-backed securities -- key financial instruments which have plunged in value in recent months, wreaking havoc on banks' balance sheets and shares. "Central banks, including the Bank of England, have been looking at ways to ease the strain," a BoE spokesman said. "The BoE is not, however, among those reported today to be proposing schemes that would require the taxpayer, rather than the banks, to assume the credit risk."

  • The Financial Times had said the talks between central banks were at an early stage and part of a broader exchange on how to restore stability to financial markets. It said the BoE appeared to be most enthusiastic to explore the idea; that the Federal Reserve was open to the idea in principle, "but only as a last resort," and that the European Central Bank was less keen. (did you ever imagine the day when the US was more socialistic than greater Europe? Desperate times call for desperate measures - but this free market capitalism baloney is being exposed for what it is - on the upside it is great, but once regulation, massive risk taking, and huge transfers of wealth play out - the common folk will be asked to pay the bill)

Former Treasury Secretary Robert Rubin says it's time to use public tax dollars to bail out the banks from their lightly regulated, risk loving actions. Of course it would help Citigroup which he is closely associated with; and anyone running Citigroup obviously is unbiased (not to mention did a great job managing risk in the past 5 years)
  • Former Treasury Secretary Robert Rubin called Friday for quick government action to tackle the rising level of U.S. home foreclosures and he indicated that taxpayer money would have to be used.
  • "There is a strong need for urgent action," Rubin, who is chairman of Citigroup's executive committee, said. "I would be very, very seriously considering the possibility of using public funds in one form or another." The Federal Housing Administration should be involved in any stepped-up government effort to help homeowners facing the loss of their houses, Rubin said during an interview on Bloomberg Television's "Political Capital with Al Hunt."
  • He praised the Federal Reserve for the steps it has taken to help the economy and to ease strains in the financial markets. "The Fed has done a very good job," he said. "The Treasury, working with the Fed, did the right thing conceptually in rescuing Bear Stearns."
  • Rubin said that securities companies should be subject to the same regulation as banks now that it has become clear that they would get the same government support. (yes that would be nice - I mean now they get funds from the tax payer, yet none of the same regulation as the direct lending institutions - talk about a perfect world for the investment banks)

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