Fed to Buy U.S. Debt, Saying Recovery Has Slowed

[sabra]

Source: NY Times

WASHINGTON — Acknowledging that the recovery has slowed, the Federal Reserve on Tuesday announced that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities.

By buying government debt, the Fed is taking an unmistakable step to maintain the large amount of money that it pumped into the economy, starting in 2007, to prop up the financial and housing markets.

The Fed bought $1.25 trillion in mortgage-backed securities, and another $200 billion in debts owed by government-sponsored enterprises, primarily Fannie Mae and Freddie Mac, and completed the purchases in March. The Fed had planned to allow the size of that portfolio to shrink gradually over time as the debts matured or were prepaid. Instead, the Fed will reinvest the principal payments in longer-term Treasury securities.

The central bank said it would continue to roll over its holdings of other Treasury securities as they mature.

Read more: http://www.nytimes.com/2010/08/11/business/economy/11fed.html?_r=2&hp

[Po_d Mainiac]

1. The near end of Bernanke's great failed experiment...WASF'd n/t

[suffragette]

2. Seems like a major re-shuffling is underway

First Orszag, then Romer resign, with Romer's resignation seeming contentious despite the usual "time with the family" explanation:

http://articles.latimes.com/2010/aug/06/nation/la-na-romer-resigns-20100806

Romer had clashed with Obama's top economic advisor, Lawrence Summers, over her access to the president, though administration officials said she was not leaving because of any personality conflict or policy differences.

~~~

In his book "The Promise," Jonathan Alter wrote that in 2009, Romer complained that Summers was excluding her from important meetings. During one argument, Summers shouted, "Don't you threaten me!" while Romer replied, "Don't you bully me!" the book says.

A senior Obama administration official said in an interview that "there were some tensions early on in the administration as everyone settled into their roles. But Christy and Larry have emerged as two quite tightly allied economists on the economic team."

Romer did not prevail in some crucial policy debates. She had called for a larger economic stimulus than the $787-billion package that Obama ultimately embraced. But White House Chief of Staff Rahm Emanuel and others feared that if the stimulus were any bigger, it would create a kind of "sticker shock" that would make passage impossible.



Now we have this news. Wouldn't this be something along the line of the "larger economic stimulus" Romer was calling for?

Or am I interpreting this incorrectly?

[Roland99]

3. Oh, lovely

All this will do is mean the Fed will load money out to the Too Big To Fail banks at practically zero interest. This helps the TBTF banks' capitalization and allows them to loan money back to the government or to what businesses and individuals they *are* loaning money to (at much higher interest rates...esp. in the form of credit cards at 29% interest...so much for Prime + 1)

This is only trying to drag things out as long as freaking possible for housing prices to recover some and for commercial real estate to not tank so that all those MBS and CDOs and the CDSs surrounding them can all be revalued as prime securities.


It's another bailout for the banks while the working class gets a middle finger in their faces.

[CreekDog]

6. the fed doesn't loan money to banks to make money

is that your understanding of how the fed works?

[Roland99]

7. The Fed discount window is not an overnight facility.

hasn't been for a while.

the big banks have been gorging themselves at that trough.

[Bonhomme Richard]

4. Isn't the problem that the money already invested to expand credit

availability is being horded by the bastards on Wall Street? At least that is what I thought I was told.

[Downwinder]

5. We've gone through the Hoover stuff, can we now move on to the FDR stuff?

[nightrain]

8. finally, huh? it's about time... get Stiglitz, Krugman, and other progressive/

liberal folks in there.