Dear Readers: As my knowledge of finance and the economy is not vast, I have often found it prudent to turn to a friend highly placed in the financial services industry. As a continuing series that will appear on this blog, I will post question-and-answer sessions in which Professor Athena will explain high finance, economic matters, and anything related to Americans pursuing the greatest amount of capitalistic success as possible.
Question 1: I heard that the Federal Reserve is lending the Treasury Department $300 billion. Does that mean that they are printing money to finance the government?
Professor Athena explains:
There have been stories circulated and which I heard reported last night, and some of it is both confusing and misrepresented. Every reporter you hear who calls themselves a “financial reporter” isn’t a fixed income bond market person who deals with institutional buyers and sellers — if they were, they wouldn’t be working on T.V. for a reporter’s salary.
1. The Fed is not buying long term treasury securities. They are buying notes (2-10 years). What they are also buying is GSE MBS (Government Sponsored Enterprises Mortgage Backed Securities). Further details this morning reveal that these are GNMA pools (Government National Mortgage Association; securities are issued by mortgage bankers and thrift institutions. Many of these institutions join their mortgages in pools of about $1 million. These mortgages bankers apply to the Government National Mortgage Association for their back up and if accepted get a pool number.) They are also buying and FHLMC and FNMA MBS (“Freddie Mac and Fannie Mae” conforming Mortgage Backed Securities). These are what we refer to as “high-grade”. They are NOT “sub-prime junk”, as was reported last evening on FOX.
2. Amounts are $300 billion in Treasury coupons, $750 billion in GSE MBS and $100 billion in agency (GSE) bonds.
3. What will this do? As this Bloomberg story describes, it puts cash into the economy at a time when most needed. It exchanges the Fed cash for hard coupon-bearing assets. It reduces available supply in the U.S. Treasury market from the perspective buyers who still look to U.S. Treasury notes and bonds as the number one flight-to-quality asset and will likely participate in forthcoming new debt auctions.
4. Despite what they say in writing, the FOMC (Federal Open Market Committee) writing must be very worried indeed about the remainder of 2009 to have eased cash availability to this magnitude. It is a good thing to remember at this point the perspective of Ben Bernanke, who wrote his doctoral thesis on the Great Depression.
Bizzyblog has a great post today, fully describing the POR (Pelosi-Obama-Reid) economy.
A small highlight:
Those who think we should be impressed that the markets have bounced back should note that yesterday’s closes of 7487, 794 and 1491 for the Dow, S&P, and NASDAQ were still:
* 47.1%, 49.3%, and 47.8% below their respective October 2007 highs. Given that October 2007 is the first month during which a Pelosi- Reid-passed budget was officially in place, it is fair to say that they deserve a significant share of the blame for the markets’ decline from that point forward.
Turning to other Flaming Capitalist News:
We have a fully operational webpage for the Southern California Tax Coalition, click here for details on newly set plans for Tax Day protests and the April 11th Tea Party.
To continue the economic theme, I Think Therefore I Err has a great roundup, including a Victor David Hanson piece entitled “The Depression for Us Idiots”. Also, “David Cooperfield School of Economic Recovery” magic is explained here. Finally, no economic news would be complete today without mention of the AIG Bonus Bru-ha-ha, which comes via Gateway Pundit.
UPDATE: The Anchoress has a compelling read on Obama’s teleprompter-free experience with Jay Leno went (to give you an idea, when Obama’s comparison of AIG with suicide bombers is the second dumbest thing said this week, the answer is “not too good”.). In a related vein, Sally Morem questions if the Magic Telepromter has gone bad.