Jump to content
House Price Crash Forum
crash2006

Is The Fed Broke?

Recommended Posts

200 billion given in treasury bills? in exchange for debt? just wondering if there isnt enough money to lend out?

the treasuries sitting on the FED balance shet represents money already printed. Printing occurs by the fed buying treasuries and keeping them on the balance sheet. They explicitly stated that this new auction would not increase the balance sheet i.e. no new printing is taking place. THey are simply swapping treasuries for MBS. These treasuries are then more easily posted as collateral against margin calls for the primary dealers who borrowed them. For example, I am bear stearns and just recieve a margin call for 2bln, the haircut on AAA MBS has been increased from 25% to 50%. As a result I have to post 4bln in AAA MBS, or I can now go to the FED who charge a 20% haircut and post 2.5bln and receive 2bln of treasuries, which I then post as collateral or hte margin call. This is a short term measure which I beleive is actually stopping banks becoming insolvent. It won't work forever but buys a little time.

Share this post


Link to post
Share on other sites
the haircut on AAA MBS has been increased from 25% to 50%

Are these actual numbers? I was under the impression the Fed was offering to swap them 1 for 1.

Share this post


Link to post
Share on other sites
200 billion given in treasury bills? in exchange for debt? just wondering if there isnt enough money to lend out?

The Fed has $600bn or so of TBills that it can play with.

Share this post


Link to post
Share on other sites
200 billion given in treasury bills? in exchange for debt? just wondering if there isnt enough money to lend out?

One way or another the US taxpayers will end up owning all those bad debts, because it's the only way to prevent a massive banking collapse; which would be considered bad news in an election year. Having the government buy them up will obviously destroy the dollar in the long term (i.e. after the next election), but the alternatives the politico-banking class are looking at are far worse for them in the short term.

And, after all, it's only paper.

Share this post


Link to post
Share on other sites
200 billion given in treasury bills? in exchange for debt? just wondering if there isnt enough money to lend out?

Technically, I don't think the fed can go bankrupt as it can always create new money. That doesn't mean that the money it creates will be worth anything of course, but that's a different problem.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 295 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.