The dumping grounds

[30ashopper]

If anyone is curious about why the market is rallying when the underlying data indicates no real recovery is taking place, look no further than where all excess investment in the markets is coming from. PIMCO's Gross recently admitted they sold billions of worthless assets to the FED at a premium, with the proceeds going into treasuries, corporate bonds, and stocks. Is it any wonder now why Obama suggested in March "now is a great time to buy" stocks? He knew what the FED was planning. Congress didn't have to approve this stimulus either, the FED just implemented it as a form of policy.

Worse, when the FED tries to unwind this mess, they'll have to sell at a loss, leaving excess liquidity in the markets. 2010 should be a very interesting year.

 

[scooterbug44]

I wondered why the market kept going up - assumed it was the Santa Claus effect and people doing their yearly IRA contributions, not our government "paying a premium" for worthless securities.

 

[Miss Critter]

Wow, that's a lot of gray! So how does this mess unwind? Do you have a link to any articles that can make this understandable to financial boneheads like me?

And does an impending crappy market make real estate a more desirable investment?

 

[30ashopper]

Wow, that's a lot of gray! So how does this mess unwind? Do you have a link to any articles that can make this understandable to financial boneheads like me?

Securities will basically get sold off, probably over a number of years. The treasuries, not to sure, hold them to maturity maybe? For MBS, they are talking about an interesting trick as an interim tool if things get ugly - where they sell them back temporarily to banks (sucking up capital) with a promise to buy them back at some time later at a slightly elevated price. Which is pretty crazy when you consider the banks sold them originally to the FED at an elevated price. Basically, we're all going to mop up the losses the banks should be taking on their bad RE investments. It's pretty sad. Somewhere down the line, news stories about capital losses on the FED balance sheet will likely be big news. Long term, the FED hopes it can sell this stuff at the price it paid for it, which might explain why we're pumping so much public money into mortgage re-finance programs, that basically adds value to the assets the FED holds. Of course, the net net of it is, we pick up the tab no matter what. The banks and investment firms get off scott free. It's all pretty sick and twisted IMHO.

And does an impending crappy market make real estate a more desirable investment?

The chances of a double dip make RE a pretty risky investment right now. (That's just my opinion.)

 

[30ashopper]

They are still buying these things too -

Fed Plan to Stop Buying Mortgages Feeds Recovery Worries - WSJ.com

 

[30ashopper]

On January 5th Mr Grimsson rejected a bill, passed by parliament on December 30th, on a state guarantee for €3.9 billion ($5.5 billion) owed to the British and Dutch governments. That covers compensation paid to savers in those countries after the collapse of Landsbanki and its internet-banking scheme, Icesave—one of three stricken Icelandic banks nationalised in October 2008. Mr Grimsson balked at the latest terms of the guarantee. Prompted by a petition from 60,000 Icelanders and polls suggesting that 70% of the population would vote against it in a referendum, he turned from the rubber-stamping president into Superman.

As a nation, we seem unwilling to say "no" to the banks, having been convinced by our politicians that we have no choice. The same thing happened to the country of Iceland, but they stood up and said "no". Should be interesting to see what happens next.

Icelandic finance: Is it a blizzard? | The Economist

 

[Zebraspots]

What happens if they say no to the banks?

FDIC is still in place for deposits if they fail, but what happens to people who are actually paying their loans? Does it even matter if the bank has packaged them and sold them?

 

[30ashopper]

What happens if they say no to the banks?

FDIC is still in place for deposits if they fail, but what happens to people who are actually paying their loans? Does it even matter if the bank has packaged them and sold them?

The contracts would be owned by whoever buys the assets of the failed banks. For example, it's pretty common these days to find RE contract transfers in walton county records.