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Fed Halts Sales Of Toxic Aig Sludge Upon Realization Any Balance Sheet Unwind Crashes The Market

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http://www.zerohedge.com/article/fed-halts-sales-toxic-aig-sludge-upon-realization-any-balance-sheet-unwind-crashes-market

Three weeks ago, when discussing the failed (yes, failed) Maiden Lane 2 auction by the New York Fed, we said: 'Something quite disturbing happened during today's latest attempt by the Fed to sell $3.8 billion in face amount of Maiden Lane 2 assets: it had a busted dutch auction. In fact, the auction was so massively busted, the New York Fed managed to sell only half of the bonds for sale, or $1.898 billion in 36 Cusips of the total 73 Cusips offered for sale." Subsequently we noted the sudden radiosilence from the Fed on this issue on Twitter. To be sure, every MBS trader and the kitchen sink promptly complained that the Fed was saturating the market with toxic AIG garbage, which prompted us to declare that: "unless someone opens up a release valve, we are about to see a massive regurgitation and even more massive repricing of credit risk, first in IG, then in HY and ABX/CMBX, and lastly, and most massively, in equities, which continue to exist in their own world and which are now totally disconnected with HY, which they used to track so very closely." We just got the release valve: from Bloomberg: "The Federal Reserve Bank of New York is halting its sales of mortgage bonds acquired in the rescue of American International Group Inc. "Given prevailing market conditions” for residential mortgage-backed securities, “we do not anticipate any sales of bonds in the near term or until such time as the New York Fed deems it will achieve value for the public," Jack Gutt, a New York Fed spokesman said in an e-mail." Uh, what prevailing market conditions: a Nasdaq which has ripped over 100 points in one week (granted on no volume and on unprecedented market manipulation but so what). Regardless, this is a huge slap in the face for the Fed, which has just proven that even in a surging market it can not unwind an amount from its book that is less than 1% of its total asset holdings without actually crashing the market.

The Fed bought crap and now finds it can't get any buyers, I mean who'd have thought that would happen. The Fed is probably unlikely ever to get rid of what it's bought for anything other than a massive loss.

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You have to assume they tried to sell the best assets first so, given this was such a tiny chunk of the total, it's hard to see how they'll sell any of the rest in the near future. My guess is that they'll end up holding most of it until either it defaults or matures. The same applies to assets bought under the various QE programmes (US, UK and elsewhere) except that, in the case of central banks buying their country's own sovereign debt, I predict that most of it will be written on in one way or another (i.e. stealth monitization).

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You have to assume they tried to sell the best assets first so, given this was such a tiny chunk of the total, it's hard to see how they'll sell any of the rest in the near future. My guess is that they'll end up holding most of it until either it defaults or matures. The same applies to assets bought under the various QE programmes (US, UK and elsewhere) except that, in the case of central banks buying their country's own sovereign debt, I predict that most of it will be written on in one way or another (i.e. stealth monitization).

Realistically, none of this stuff (toxic assets taken onto Central Bank balance sheets, bonds bought by QE etc.) is ever going to be unwound.

There exists the fiction that it will be unwound someday in order to prevent people seeing the process for what it is - direct monetisation of debt because the authorities do not want to make the fraudulent, greedy idiots who created the losses, face the losses.

There isn't enough money in the public purse to cover the losses, borrowing it on the markets would cause interest rates to go through the roof so they have no option but to monetise the debt by 'printing' the money (i.e. taking the toxic crud directly on to Central Bank balance sheets or buying their own bonds to bail out the banksters through their Central Banks).

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LOS ANGELES — If Countrywide Financial co-founder Angelo Mozilo had sold former Bank of America boss Ken(Masonic symbol) Lewis a kitchen sink, maybe they could have tossed that in there too.

Bank of America, which under Lewis bought Countrywide in 2008 for stock then worth $2.5 billion, said in a statement Wednesday that settling claims by holders of Countrywide mortgage securities would cost it an additional $14 billion.

That amount, to be recorded in Bank of America's second-quarter earnings, is just the latest in a long string of painful payouts stemming from the takeover of Countrywide, the Calabasas, Calif., lender that once was the nation's largest writer of mortgages - many of them of the subprime variety.

On top of an $8.5 billion payout to 22(Masonic symbol) institutional investors, the $14 billion includes $5.5(Masonic Symbol) billion to cover other demands by holders of mortgage securities.

Bank of America says it will report a second-quarter loss of $8.6 billion to $9.1 billion after recording $6.4 billion in additional mortgage-related charges, including a $2.6 billion write-off of its Countrywide investment.

That follows a similar action in January, when Bank of America Chief Executive Brian Moynihan chopped $2 billion off the value of Countrywide on the bank's books.

All told, the settlement covers the Charlotte, N.C., bank's exposure to claims by holders of securities backed by 530 trusts stuffed with Countrywide mortgages with an original principal balance of $424 billion.

"This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty and put legacy issues behind us," Moynihan said in a statement.

"We will continue to act aggressively, and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide."

Bank of America said the settlement would resolve "nearly all" of its exposure to claims that Countrywide misrepresented the riskiness of mortgages backing bonds it sold to investors such as Newport Beach, Calif., bond giant Pimco.

The bondholders to be paid off also include the Federal Reserve Bank of New York. The Fed wound up with them when JPMorgan Chase & Co. agreed to take over failed Wall Street giant Bear Stearns - but only if the government pocketed Bear Stearns' most toxic securities.

There's still a lot of Countrywide liability left for Moynihan to deal with. In addition to securitized second mortgages, Bank of America still faces demands including those of mortgage insurers who claim they should be repaid for their Countrywide losses.

And let's not forget the borrowers who wound up in foreclosure on their Countrywide loans. Bank of America is among five major mortgage servicers that are negotiating with state and federal officials over botched foreclosure proceedings. The total settlement figures being bandied about for months now start at $5 billion and range upward of $20 billion.

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Opinions aside, what does the implication of "printing" money suggest empirically?

What effects have we seen thus far?

Looking at recent data, what must amount to perhaps 4 trillion in printed money since fall 2008 has merely succeeded in returning asset prices to round about 2008 levels.

Ofc its difficult to categorise "printed money" since direct debt monetisation is not much different in effect to various guarantees.

Speaking of which:

OECDguarantees1.jpg

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Looking at recent data, what must amount to perhaps 4 trillion in printed money since fall 2008 has merely succeeded in returning asset prices to round about 2008 levels.

Ofc its difficult to categorise "printed money" since direct debt monetisation is not much different in effect to various guarantees.

Speaking of which:

OECDguarantees1.jpg

I love the smell of empiricism in the morning.

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Guilty as charged. Empiricism doesnt keep the cockles warm for long.

Are your cockles warm or cold then?

I'd say cold then because you have always positioned yourself as a 'lets see what happens' kind of man.

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Are your cockles warm or cold then?

I'd say cold then because you have always positioned yourself as a 'lets see what happens' kind of man.

Cold generally.

My feelings are printing is nothing more than a administrative requirement, It means nothing until capital can find growth elsewhere in the world.

What exactly does systemic bank insolvency mean? What are the real world physical realities that prevent you from trading? Cash flow? Don't they hold all the cash already?

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Cold generally.

My feelings are printing is nothing more than a administrative requirement, It means nothing until capital can find growth elsewhere in the world.

I agree. Printing is less relevant than yield differentials. If printing affects yields, then it matters, else not so much.

People believe in yield, and little else.

What exactly does systemic bank insolvency mean?

IMO it only indicates a social imbalance which can in theory easily be corrected, if not in practice.

What are the real world physical realities that prevent you from trading? Cash flow? Don't they hold all the cash already?

I think the only thing preventing people from trading is that they might perceive they'd be better off by not trading. Who holds the cash? Big multinationals and SWFs, mainly. Certainly not the banks.

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what is cash?

Central bank liabilities.

Bank accounts at the central bank are reserved for banks, national governments and central bank employees.

Corporates have "cash at bank" - their commercial bankers: credit.

If corporates have "all the cash" - so do the banks they bank with.

Edited by Alan B'Stard MP

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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