Foreign investment in UK falls by half
Consumer spending recovery runs out of steam in August
Oh no, it looks like Britain will have to declare the start of a new recession. After only 9 days of no recession, that's a shame.

I have doubts about the Feds ability to stop purchasing MBS at the end of this year.

If they stop, who is going to step in to fill the $1.25 trillion crater left behind?

HG

Everything tastes a little to a lot better in Italy for some reason. You'll eat a peach and you'll think it's the greatest one you've ever had. Let yourself go and taste a little of everything. A memorable meal was on the ferry from Naples to Palermo, i've been on too many ferries, and the food is usually rank, but on this trip, we had an excellent meal, served by a well-dressed waiter. Food matters in Italy.

People-watch all you can, because Italians speak with their bodies. Try to catch a bunch of old guys playing bocce somewhere. You won't be in a big city but the people don't vary much, and watch the fingers, hands and arms waving this way and that way, an eye looking askance, trying to match up with the words coming out of their mouths.

HH,
The hell I can't. It's not their government to run. Violation of the Constitution is valid for standing as it is a legal damage . There's a clear violation of Section I Article 8. Congress is my duly enacted representative. The executive cannot go beyond the scope of the law. Looking into the issue I think it's clear there is a violation. Plenty of people have sued over EPA.

Violation of the Constitution provides me a valid standing to sue; not the basis of taxpayer standing. Now I know what the soliciator general will argue; they will argue some type of agency deference. However my lawsuit will claim that agency deference was thrown out the window and they did not act in a reasonable manner. Furthermore, per Supreme Court we don't need to look within the statute itself for Congressional intent. Congress debated vigorously over whether to provide money from the TARP to the automakers, and they decided not to allow that use of TARP funds. There's some ruling where O'Conner says we are allowed to look outside of a statue for Congressional intent. So even assuming "broad" definition of "any other institution" , Congress specifically debated and did not approve the use of TARP funds for the automakers. Therefore, even if there is such a "broad authority" by Congress debating and rejecting the use of TARP funds they specifically excluded one type of institution from getting TARP funds. Yup, that would be the automakers.

So any "instiution" would include everything except the automakers based on the debate in Congress.

My Congress didn't authorize the use of those funds.

I dont think CR is missing the point...I think that is just part of the reason. Just goes to show that it is taking ENORMOUS amounts of buying to get relatively modest improvements over what would be expected.

The scary part is that it shows you how fragile everything still is. Because, Id bet that if there was no guarantee, and no buying, the spread would move ot the other side of the regression line....and their would be higher rates than normally expected.

actually, you can't. congress can act and do just about anything, though there hasn't been a real will to reign in rogue executives since TR. but you can't. you're more of a "subject" than a brit when it comes to bizarro fantasies of taking the fed to court.

but, hey, you can always run for congress. just call jamie dimon first, he'll hook you up with a seat, either party is fine.

A memorable meal was on the ferry from Naples to Palermo, i've been on too many ferries, and the food is usually rank, but on this trip, we had an excellent meal, served by a well-dressed waiter.

We had a similar experience going from Naples to Catania. And there is NOTHING like being on deck of a boat in the straights of Messina as the sunrises and Etna is erupting (not a lot, but a glow of lava). Truly memorable.

Home Gnome -
I'm getting the impression you plan to spend time eating and drinking wine.

I think CR has missed a few critical details.

The MBS and Treasury markets are coupled. Changes in one set of rates impact all other rates as well.

This suggests the Fed's buying of MBS is reducing mortgage rates by about 35 bps.

What I think is happening is that the Fed is reducing BOTH Treasury and Mortgage rates by buying MBS. Narrowing the spread between MBS and Treasuries forces Treasury yields down as well, as potential MBS buyers start to find Treasuries more attractive.

This suggests to me that mortgage rates will rise by about 35 bps, relative to the Ten Year yield, when the Fed stops buying MBS.

I think all interest rates will rise more dramatically than that, when the Fed stops buying and the U.S. Government has to find legitimate private-sector buyers for all the lousy debt that is being issued!

Well, yeah.
I've learned about twenty words of Italian.
Wish me luck.

Is the purpose of buying MBS's to lower mortgage rates or is it to take them off bank balance sheets? I thought they were buying longer term treasuries to do that?

I'd like to see mortgages go to 7%, cause my money market isn't making much dough @ 0% -- I love those inverse relationships.

Currently blasting: YouTube - Radiohead - Lucky

Ahh, the fateful October.

*
HomeGnome (homepage, profile) wrote (in reply to...) on Thu, 9/17/2009 - 6:34 pm

Well, yeah.
I've learned about twenty words of Italian.
Wish me luck.*

Avoid the gypsy's. You won't win-

NO fear here, JD.

"HollywoodHack..."

I think the psychological power of the Fed in placing a bid under the Treasury market can't be underestimated, and they only need to slide a pinkie to show a fist.

They have basically destroyed what was once thought of as "Bond Vigilantes". The proof is in the pudding - the post-9/11 commodity Bull isn't purely a product of speculation - the M3 exploded in much of that period (so much so that it had to be quietly removed from view). Where was the Treasury market's response?

Their desperate swallowing of a trillion+ in MBS trash only underscores this willingness to support these markets. If they felt it was necessary, they would easily conjure multiples of that to support the Treasury market.

*
lawyerliz (profile) wrote (in reply to...) on Thu, 9/17/2009 - 6:34 pm

What fun, they sold it to themselves.

Diagnosis: World of Hurt for Wells.*

Got popcorn?

Re: "mortgage rates will rise by about 35 bps"

Add in some spread there.... be nice to the dealers.

It's bueno (a?) suerte in Spanish. Gotta be pretty similar in Italian.

My latest part timer (previous one went to work for an atty doing foreclosures
and mtg mods, full time, ?) did not know the word for mtg in spanish--only
one ever has, and she was born in South American--it's epoteca from the Greek,
hypothecate.

HG,

I could tell you gobs of cool places to go in Italia, but if you like history...

The whole friggin' country is a giant candy store~

Enjoy.

*CalculatedRisk (profile) wrote on Thu, 9/17/2009 - 6:37 pm

Cinco-X, the Fed is buying GSE MBS, and that is guaranteed by Freddie and Fannie (and back by all of us). So I think the Fed is buying to reduce mortgage rates.

best to all*

Should we presume that this is done to try and hold up house prices, or do you think it's to try and get as many sub-Prime/Alt-A's converted to "regular" loans before this unsustainable gambit fails? Is there any possible endgame where we can actually win (as a society)?

Cinco-X, the Fed is buying GSE MBS, and that is guaranteed by Freddie and Fannie (and back by all of us). So I think the Fed is buying to reduce mortgage rates.

best to all

Therein lies my confusion. GSE MBS is backed by the full faith and credit of the U.S. (explicitly now as opposed to implicitly as it was 1.2 yrs ago). Thus, other than the distinction of duration sensitivity to interest rates, GSE MBS and Treasuries have the same inherent risk characteristics.

So wouldn't buying strictly Treasuries accomplish the same thing as buying both Treasuries and GSE MBS?

If the Fed bought the 10 yr in the amount of 1.25 trillion we would expect to see the 10 yr drop well below 3%. Liekwise we would then see private invesotrs jump in and buy GSE MBS.

I guess I still don't understand why the purchases are separated if, other than interest rate duration sensitivity, GSE MBS have the same default risk as Treasuries (essentially none).

CR, I believe rates would be a lot higher if not for the FED buying those $1.25 trilion in MBS. Not only the spread to treasurys would be higher, but treasurys themselves would have a much higher yield. This is because the monetization by the FED is an indirect way of financing the budget deficit, which would not be possible to finance otherwise.

This is also the reason why the market has "demand" for Treasurys, and also the reason why stocks, commodities, corporates, etc, all go up together. A part of the selling in MBS is realocated between Treasurys (mostly) and all the other assets.

I wonder if the FED knows this and are doing it to inflate all assets ...

Regardless of if I'm allowed to so; I still think its worth the time and money to build a case and file; the worst that happens is that the US district court pisses over me, or the merits of the case piss over themselves... and then some other citizen can decide if he can do a better job of pissing in the wind than me.

I simply believe if someone feels it was unconstitutional for Treasury to use the money to bailout automakers, they should make the case and put it before court. Don't whine and complain about it, until the court rejects your arguments.

Did you buy the fridge and save the world. Or at least Mexico?

oui!

Why did you take away your cute boxes, doc?

YLSP, the constitution has been in trouble since 1918. But congress can still act. Your role as a private citizen is not to decide constitutionality. Develop some juice in one of the three branches if you really care.

"Is it a bang for the buck arguement? "

that, and the idea of not being too dramatic in a way which might spook foreign CBs.

You might have to pay the other side's atty fees for frivolousness.

So if the MBS purchase stop, there should be a steady and orderly unwind back to 35bps above 10-year Treasuries?

I can't see it. There are plenty of yield-chasing incentives, and disorderly exit possibilities, that mortgage rates could break significantly to the upside as the program unwinds, even for a sharp, shameless, but lucrative period until the market - whatever it looks like post new normal - stabilizes and a broadly collusionary rate is re-established after a lag.

Isn't that one of the key short-term risks of unwinding unorthodox policy? Twixt the release, and the mean reversion, falls the shadow.

C

"I regret that I had but one refrigerator to buy for my country, and yes I bought one. It's coming Tuesday."

We bought one a few months ago. You'll like the feeling.

The unwind will be very slow - just watch

I don't do Federal law. Usually not relevant to real estate law.

But I think it is Rule 11 of the Federal Rules of Civil Procedure.

Basel? Anybody? Fla adapted the Federal Rule. . .more or less.
You have to be really off the wall

of course, but you do have a problem with a spastic, unpredictable fed gobbling up treasuries willy-nilly... the dollar is backed by faith alone, as they're very clear about

you sue geithner. it's position, not the person.

purchasing FNM/FRE MBS allowed the banks to improve their capitalization, by cycling FNM/FRE MBS (20% risk weighting) for Treasuries (0% risk weight)

Angry Saver, I'm trying to estimate the impact from MBS buying

CR,

Everything with a Government gaurantee gets a low rate, especially in this market. Even loans to TARP banks got to stupid low rates once the FDIC guarantees were offered (without fed buying).

A comparison of Government guaranteed MBS rates with private label MBS rates of similar ratings might be telling.

Personally, I think the fed is buying MBS as a way of flooding the system with money while maintaining the ability to claim they are not monetizing treasury debt. More than anything, the MBS buying is a back door way to re-capitalize banks. The entire mortgage market could have been supported through Ginnie but then the banks would have been undercapitalised as their FNM & FRE paper would have been worth way less.

1.25t was the amount required to buy the fnm/fre mbs being dumped by foreign cb. A huge chunk of that from china.

I think that they are trying to inflate, and can't.

What if they gave an inflation and nobody came?

Actually, I think a smallish inflation would be the best alternative.

But prolly inpossible, like a nice little war.

YLSP,
Just my opinion, but I think you'd have more chance of success by rounding up people and showing up at your Congressional rep's office and making a stink there. Or look up all the campaign contributors and hassle them.

Financial Crisis Comes Full Circle As Bank Sues Itself - Lowering the Bar

thank you, chuck. occam's razor in action.

Yes, yes, poic, but that actually made sense.

To me, as a real estate atty (formerly).

You must name the 2nd mtgee to eliminate their interest.

Firsts and 2nd are prolly treated quite differently within Wells.

Wells was doing to itself what it had to do if the 2nd was to B of A,
or Lawyerliz. It could simply file a Satisfaction of the 2nd Mortgage,
but I would bet that would trigger all sorts of horrific regulatory and
accounting consequences.

Also, if you WIN, you weren't frivolous.

montas ankle - this is precisely the point. How do you/we/anyone know this? Unwinding unorthodox policy presents huge possibility for compound error and unintended consequences, especially if you've messed around with a range (eg all) of credit classes, and the participants are in stages of recent stress and/or desperation.

Seems to me you either have an unwind that is so slow as to be imperceptible or immaterial to the market, or a change which moves the market, in such a case which models might you go on to assess likely outcomes? ie since there aren't any.

C

But I still cling (blindly?) to my question of why MBS for 1.25 trillion and Treasuries for a much smaller amount.

Is it a bang for the buck arguement?

For one, the Fed is setting a price for MBS by buying them. The price can be used as proof of the market price banks are assigning to their assets. You'd have to ask regulators if they're accepting this mark-to-market price or not.

montas ankle: But I still cling (blindly?) to my question of why MBS for 1.25 trillion and Treasuries for a much smaller amount.

If you're "buying MBS" then (a) you're backfilling the gaping hole at Fannie and Freddie, and (b) you're not obviously monetizing the national debt (even though in practice you are), and (c) you're "supporting homeowners" rather than "inflating all asset classes".

In a fiat world the money supply isn't constant and the first place newly-distributed electronic claims against future production (aka "dollars") go is into the hands of those who do business with the Fed. Who are now Speculation Banks (formerly known as "Investment" banks), and not simply "banks". So instead of the newly-distributed money being immediately lent out for productive uses by careful underwriters, it's now immediately used to speculate in whatever paper "assets" are readily available.

A criminal defense litigation lawyer that I referred the unspeakable problem of yesterday to,
was complaining that the line of credit on his house was cut in half.

There will be no unwinding of the MBS purchases. At most, they'll stop buying. If they try to sell some of what they bought, they crash all markets (except the USD).

As for the 1.75 trillion in MBS+GSE+Treasurys, the reason for that number is that the predicted budget deficit was 1.8 trillion. It came out below because of all the asset inflation.

Montas ankle, the primary reason is that the FED does not want to be seen monetizing the debt, they do not want to be seen as if the government is running deficits that are simply paid for by printing money. The reason they don't want to be seen dloing that, is because it makes no sense for someone to accept a dollar if one knows that the person paying with it just printed it.

So what does the FED do? Instead of massively printing dollars to purchase newly issued Treasurys, they make up a story where they are supposedly controlling rates by buying MBS and treasurys in the secondary market. But thing is, whoever sells them the MBS (and treasurys), turns around and buys back more treasurys. If not for this, the private domestic savings + current account deficit would not be enough to finance the budget deficit. But this way, by means of substituting already existing MBS for Treasurys, the gov manages to finance that deficit.

However, some of the MBS sellers (pension funds, insurance companies, etc) work with allocation models (X% for this asset class, Y% for that asset class). What this means is that when they sell MBS, they end up reallocating and buying a little of everything else, including stocks and commdities. They buy mostly treasuries, but a small fraction ends up inflating every other market.

I come here for posts like this. Thank you Incognitus.
Maybe this was all obvious to everyone else. It wasn't yo me.
This explains to me the mechanics of China dumping agency debt and beefing upon Treasury debt.
This explains the entire liquidity basis of the ralyl in commodities, equities etc.
But then what happens when the Fed unwinds the MBS purchases?
Seems to me things can't flow exactly in reverse.

Counterpointer - you are of course, correct. I do think that the Fed will be in the MBS market for at least all of 2010 to some degree, maybe even into 2011.

Liz - so he can't make chipmunk hutches either?

Oh noes...

C

You nailed it. And yesterday's report about the Treasury taking back some funds from the Fed because T didn't want to hit the debt ceiling should have red flagged this for everybody.

SOMEBODY might be able to demonstrate a particular harm.

Care to speculate who might have such a harm? I can't think of anybody
at the moment.

Now that is thinking outside the box.

Noz, noes, no, that is thinking deep inside the box!

I got forty red white and blue shoe strings
And a thousand telephones that don't ring
Do you know where I can get rid of these things
And Louie the King said let me think for a minute son
And he said yes I think it can be easily done

Yeah, doc. By the way, how do you do that?

Use the quote feature...
many times
And remove the spaces and new lines between the little angle brackets.

It is IMPOSSIBLE for treasurys to crash even if nobody wants them. The FED can print as much money as they see fit. The dollar, however, is another matter. Unless, unless the FED turns criminal and prints dollars to buy derivatives quoted in dollars implying an arbitrage where the seller has to turn around and buy dollars ... eheh (this is actually possible.!! Then, the only way of stopping the charade, would be for people not to accept dollars at all).

As for the unwind of the MBS purchases, there won't be any unwind. At most they stop buying them. If they are dumb enough they'll try a token unwind, but the consequences would be immediate, they would stop that in a hurry.

Yeah, doc. By the way, how do you do that?

Ken (The Man) allows this box graphic to display by using the > symbol, and I reckon you have to use your shift key, as for inserting icons, that is another matter, which he also explains on the HTML page

I believe a violation of the Constitution is the harm. I need not have suffered a monetary loss; I was reading something that shows I suffered "legal harm".

The EESA also provides for judicial review:
Actions by the Secretary pursuant to the authority of this Act shall be subject to chapter 7 of title 5, United States Code, including that such final actions shall be held unlawful and set aside if found to be arbitrary, capri-cious, an abuse of discretion, or not in accordance with law.

I went to bed last night thinking no one would be able to provide standing; but now I think any citizen would have standing to challenge the use of funds to bailout the automakers. Especially since this is a specific temporary law.

Something about foreign CBS dumping the majority of the fnm/fre mbs tells me they aren't so sure about 30 years of explicit backing. Otherwise why dump it. I don't think the "explicit" backing is as explicit as you believe it is.

Re: "How many things can you put in the box?"

It depends on how big the box is (and the # of beers you have had)

Watch out for the "attendants" at the AutoStrada gas stations, if you are driving a rental. I was in Naples in '03 visiting my niece, and they will swarm the car. Make sure you have the phrases " Diesel, please", "The oil level is fine" and " Come back here with my air filter, now!!" down pat. After driving there only a couple days, we were doing the hand "signals" and arm "gestures" like natives.

lawyerliz

Look at the editor below the comment preview area to see almost in real-time what your doing. It helps to put the tags in front of your words

Remember one thing, what the FED did was print enough money to buy 80 million autos, in a market that sells 10 million/year. What the FED did was print enough money to buy EVERY house that trades in the US in a single year. What the FED did was print enough money to pay $20k to half the active population in the US ...

Congress must not like the way the FED took control of all the purse strings.

Congress loves having an excuse, though.

OT: The Costco in Newbury Park, CA put out their Christmas items this morning. Retail is gonna be interesting to watch for the next few months.

re: foreign net purchase, net selling.

hard to buy notes and bonds when your hauling precious metals...

plenty of indirect bidders though..so closely located they dont have to wire the money, they send a messenger.

Does it matter how we don't get there?

well, dollars were gold for the first 160 years and gold abroad for the 40 after that. we also had actual silver in our coinage until the early 60s.

that is the key factor.

There you go.

It's a circular problem for them though. If they dump the Agency MBS and the FED buys them, then the Treasuries they buy with the proceeds (in dollars) are backed in large part by - you guessed it - MBS.

So how does China get out of it?

Rejected Onion Headline:
SEC Launches Crackdown on SEGA Dreamcast-backed Securities

Excess Sebum

What the FED did was print enough money to pay $20k to half the active population in the US ...

that's just an average. Some people got a few thousand, others got a few million.

They don't get out of it.

A dead dollar would equal a dead China too.

They will continue to support our dollar so long as we continue to make sure it does not suffer a catclysmic crash.

1

1.  ↩

RD-In south san francisco Costco Xmas junk was out before labor day!

Thank you Nemo!

Was that a free heads up from the

I'm sorry, that makes no sense to me.

HG

Make sure you rent a GPS. 60 euros last I was in Italy.

That is all!

Has anyone transferred their money out of their money market accounts ?

Ummm, what's a tag?

I'm sorry, that makes no sense to me.

I know, that was not a good example, but maybe start with the ? icon above posts, it takes you to a page on HTML and helps with examples (more than what I do). I'll continue to offer help, but see what you think about the formatting help page.

What's an anchor?
ht means hypertext I think, what means ML?

ML means manual?