[firestarter]

Here's a link from Reuters:

Reuters




$this->bbcode_second_pass_quote('', ' ')By Al Yoon

NEW YORK, Aug 10 (Reuters) - Banks reaching for the Federal Reserve's liquidity lifeline Friday offered only "agency" mortgage-backed securities as collateral, reflecting what could be increasing disfavor for these investments.

In its biggest such move by the Fed since the days after Sept. 11, 2001, the central bank on Friday pumped $38 billion in cash into the banking system via three-day loans known as repurchase agreements or repos.

As guarantee for repayment, banks could have also offered as collateral U.S. Treasuries or corporate agency debt of thegovernment-chartered housing finance companies Fannie Mae and Freddie Mac.

But they nixed those options, offering just mortgage-backed securities issued by Freddie Mac, Fannie Mae and government-owned Ginnie Mae.

"The mortgage market is going through a repricing and it has a lot of uncertainty, so people feel more comfortable" loaning MBS for repos, said James Swanson, chief investment strategist at MFS Investment Management in Boston.

Investors prefer to hold the "pure," or "more quantifiable" Treasury and corporate agency debt.

The agency MBS market -- comprised of guaranteed securities created with loans by Fannie Mae, Freddie Mac and Ginnie Mae -- is about $3.5 trillion, almost as big as the entire stock of U.S. Treasury debt, which is about $4.4 trillion. Agency MBS are backed by mostly "prime" loans, and because they are guaranteed do not carry much credit risk as subprime mortgages. ...

[mmasters]

$this->bbcode_second_pass_quote('firestarter', 'I') don't have a link at present, but I'm certain that Fridays $38 billion in repos were backed not by treasuries but rather by MBS's.

Roubini and others have written extensively on the moral hazard this engenders.

[MrBill]

$this->bbcode_second_pass_quote('firestarter', 'H')ere's a link from Reuters:

Reuters




$this->bbcode_second_pass_quote('', ' ')By Al Yoon

NEW YORK, Aug 10 (Reuters) - Banks reaching for the Federal Reserve's liquidity lifeline Friday offered only "agency" mortgage-backed securities as collateral, reflecting what could be increasing disfavor for these investments.

In its biggest such move by the Fed since the days after Sept. 11, 2001, the central bank on Friday pumped $38 billion in cash into the banking system via three-day loans known as repurchase agreements or repos.

As guarantee for repayment, banks could have also offered as collateral U.S. Treasuries or corporate agency debt of thegovernment-chartered housing finance companies Fannie Mae and Freddie Mac.

But they nixed those options, offering just mortgage-backed securities issued by Freddie Mac, Fannie Mae and government-owned Ginnie Mae.

"The mortgage market is going through a repricing and it has a lot of uncertainty, so people feel more comfortable" loaning MBS for repos, said James Swanson, chief investment strategist at MFS Investment Management in Boston.

Investors prefer to hold the "pure," or "more quantifiable" Treasury and corporate agency debt.

The agency MBS market -- comprised of guaranteed securities created with loans by Fannie Mae, Freddie Mac and Ginnie Mae -- is about $3.5 trillion, almost as big as the entire stock of U.S. Treasury debt, which is about $4.4 trillion. Agency MBS are backed by mostly "prime" loans, and because they are guaranteed do not carry much credit risk as subprime mortgages. ...

[mattduke]

The very existence of the Fed is a "moral hazard", not so much whether it chooses to intentionally overvalue mortgage securities or treasury securities. Since banks are not allowed to fail like other businesses, to what extent are they still private institutions? And the banks know it. The existence of the Fed increases the risky behavior banks take by loaning out multiple property titles to the same property. Of course, since governments are always the number one customer, it's easy to see why they are granted this legal privilege.

[Eli]

$this->bbcode_second_pass_quote('mmasters', '')$this->bbcode_second_pass_quote('firestarter', 'I') don't have a link at present, but I'm certain that Fridays $38 billion in repos were backed not by treasuries but rather by MBS's.

Roubini and others have written extensively on the moral hazard this engenders.

[Iaato]

Here's a little comic relief on economics as a science

"Where's the Bid?

Currently, all of the portfolios we manage are undergoing a rigorous screening known as ``crossing our fingers and praying that we don't have to try and find a bid in the market.'' This is supplemented by a cross-market statistical analysis originally developed by the U.S. military called ``don't ask, don't tell.'' This ``unmarking-to-unmarket'' procedure has been the benchmark for the hedge-fund industry for the past, ooh, 72 hours.

We have, of course, been in touch with the rating companies to update our default-probability scenarios, particularly on the AAA rated investments we own. They recommended a forecasting method using stochastics to regress the drift-to-downgrade timescales for the past 100 years and throw them forward for the next five minutes. The technical term for this is ``induction,'' though those of you of a less quantitative bent may know it as ``guessing.''

Mark Gilbert on bloomberg: Hedge Fund Guy Atones for his Subprime Sins

[threadbear]

$this->bbcode_second_pass_quote('Gideon', '
') .
Are you hearing me world? A Fucking calamity.

Now, just a few days later, the Fed has sent out signals that it intends to do just that - lower the fed funds rate - at the next meeting.

Wow. I guess Poole probably regrets using the word "calamity" now.

I wonder if Ben is going to brief us on the calamity at some point?