I was worried about the markets today. March 31, 2010 marks the end of the US Federal Reserve's buying of mortgage backed securities-- an effort to try to stabilize the US housing market, the banking industry and keep the economy from a double dip recession. Year-to-date, the US Fed has purchased nearly $1.5Trillion in troubled mortgage backed securities.
What happened?
Good ole Fannie Mae and Freddie Mac (Government Sponsored Entities) said they will take the Fed's place and purchase MBS to keep the $5Trillion MBS market stable.
Of course no one asked where Fannie and Freddie were going to get the money to do this. After all, the FED can just print the money it wants to spend. But Fannie and Freddie rely on the US government to use US taxpayer dollars to absorb the losses.
Now maybe you understand why the following news report about certain US Government actions taken on Christmas Eve 2009 occurred:
"On Christmas Eve, Treasury's said it would allow the cap on funding commitment under agreements with the two GSEs to "increase as necessary to accommodate any cumulative reduction in net worth over the next three years." This was announced although neither firm is near the original $200 billion per institution limit established under the agreements. Total funding provided under these agreements through the third quarter has been $51 billion to Freddie Mac and $60 billion to Fannie Mae. Treasury also made the requirements to reduce the GSEs portfolios more flexible.
Treasury said it was removing the caps to "leave no uncertainty about the Treasury's commitment to support these firms as they continue to play a vital role in the housing market during this current crisis."
Hmmmmm...
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