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View Diary: Explosive Bloomberg Editorial: Bank Profits are "almost entirely" Taxpayer Money (125 comments)

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  •  are we even talking about the same thing? (2+ / 0-)
    Recommended by:
    emal, lotlizard

    They are buying 85 billion a month in bad bank mortgages (MBS) sold to the GSEs. If you recall the CEOs of Feddie and Frannie felt they had to get in the market of buying MBS from the banks or they would lose "market share"

    Why do you think Freddie and Fannie were put into receivership?

     Specifically the mortgages that the GSEs bought from the banks that they were in the process of doing a "Putback"

    What is a Putback? A Putback is when a bank sells a defective mortgage to a GSE or any other entity and the Mortgage is found to be defective. If the mortgage is defective the the bank is then forced to buy the mortgage back at face value. There are hundreds of billions of these.

    This has nothing to do with the the implicit or explicit guarantees that cover the  GSEs. This was to stop the GSEs from demanding full compensation for defective mortgages from the banks. No matter what the Banks books say, they would not be able to cover the cost of all the Putbacks.    

    The FED is planning on buying 1 Trillion dollars worth before  QExx ends. Why would the FED buy these? So the Banks wouldn't be forced to as a matter of law. The banks HAVE to buy back defective mortgages and that includes mortgages that have no traceable paperwork to ownership. Anything from no payment to bad paperwork can cause a bank mortgage to be defective.

    An analogy is,  when the Treasury department bought CDOs at face value to make sure that Credit default Swaps were worthless. Congress slammed Geithner for buying them at full value rather than offer to buy them at a discount, as long as a "credit Event" didn't occur.

    Here is the link and quote from when the program first started in 08-09 which was picked back up last year starting at 40 Billion a month then increased to 85 Billion a month, so there is no doubt that you are talking about something completely different.

    Pgae 1 & 2 of a PDF (Standford University)
    As part of its response to the financial crisis, the Federal Reserve introduced a host of new credit and liquidity programs in 2008 and 2009. The largest of the new programs was the mortgage-backed securities (MBS) purchase program. This program was part of a
    quantitative easing or credit easing policy which replaced the usual tool of monetary policy—the federal funds rate—when it hit the lower bound of zero. The mortgage-backed securities that the Federal Reserve purchased were guaranteed by Fannie Mae and Freddie
    Mac, the two government-sponsored enterprises (GSEs) with this role, as well as by Ginnie Mae, the U.S. government-owned corporation within the Department of Housing and Urban Development.

    The program was set up with an initial limit of $500 billion but was later expanded to $1.25 trillion. It expired on March 31, 2010. The Federal Reserve also created a program to buy GSE debt initially up to $100 billion and later expanded to $200 billion—and a program to purchase $300 billion of medium-term Treasury securities. The Federal Reserve’s MBS purchases came on top of an earlier-announced MBS purchase program by the Treasury.

    The reason for the Fed Bail-out?
    NEW YORK (TheStreet) -- Four years on, banks are still seeing increases in mortgage putback demands that are again pressuring shares following the recent Moody's debt downgrade.

    A more aggressive stance on mortgage repurchase demands by Fannie Mae (FNMA_) and Freddie Mac (FMCC_) -- the two government-sponsored mortgage giants, or GSEs, that were taken under government conservatorship in September 2008 -- is prolonging the mortgage mess for several of the nation's largest lenders, which are taking their time about settling the GSE putbacks.

    Freddie Mac reported that as of March 31, its outstanding mortgage loan repurchase requests -- based on unpaid principal balances (UPB) -- totaled $3.229 billion, increasing from $2.716 billion at the end of 2011. That's a 19% increase over just three months.

    Before you start throwing pie, it might be helpful if you knew exactly what you were talking about.
    •  You are spouting CT when you state that the (0+ / 0-)

      Fed is buying bad mortgages so the banks won't be putback.  That is absurd.

      The credit quality of any mortgage contained in a GSE bond is irrelevant because the bond is GUARANTEED.  Is that hard to understand?

      This is an easy way to loosen investment capital at zero risk - much like buying Treasuries.

      This is basic monetary policy you seem unable to comprehend.  

      "The way to see by faith is to shut the eye of reason." - Thomas Paine

      by shrike on Fri Feb 22, 2013 at 05:12:42 PM PST

      [ Parent ]

      •  You know I purposely (1+ / 0-)
        Recommended by:
        lotlizard

        made sure that the full explanation of this was by someone else because I could tell you not only didn't understand it, but that you had to show I was some sort of idiot for mentioning it.  I assure you, I am not an idiot and I do know what I'm talking about. It's you that seems to have a basic comprehension problem.

        Based on the above: Do you know what a Putback is?

        •  I worked many years for a large lease/loan (0+ / 0-)

          accounting software company and mortgage servicing software was our specialty.  Putbacks are nothing uncommon.  But that is irrelevant to the issue of whether the Fed is buying "toxic" mortgages.  They are not.  End of story.

          They are buying federally GUARANTEED bonds.  That is my point you are evading.

          "The way to see by faith is to shut the eye of reason." - Thomas Paine

          by shrike on Sat Feb 23, 2013 at 05:06:54 AM PST

          [ Parent ]

        •  So you think the Fed is intercepting (0+ / 0-)

          the bad loans before they can be putback to the originating bank.

          That is preposterous.   The Fed cannot service a single mortgage nor will they.   The putbacks are going on at record rates as it is.

          Yeah, yours is very imaginative CT.

          "The way to see by faith is to shut the eye of reason." - Thomas Paine

          by shrike on Sat Feb 23, 2013 at 05:13:46 AM PST

          [ Parent ]

          •  You didn't read the Stanford document (0+ / 0-)

            You didn't read the Thestreet.com  Link.

            You are acting as if the 2008 banking crisis never happened and that even if it did, it's all been resolved. Nice try there former software company employee ...

            There was never any CT in the FED saving the Banks.  That definitely includes doing whatever they can to save them from being forced to buy back mortgages that are WORTHLESS. These aren't mortgages that just have a problem. They are worthless. There is no servicing that needs to be done. There are 100s of billions of dollars worth of these mortgages that have a face value but zero in real value. No one knows who owns them. There is no proper documentation on them. All the Big banks sold as many as they could to Freddie and Fannie.

            Lets remind ourselves what Fannie and Freddie do:

            The corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS),[3] allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on thrifts
            So many of them that Freddie and Fannie still owe 140 Billion to Taxpayers for their own bail out.

            The mortgages that the banks got stuck with at the end of Musical Mortgages they  used as collateral to borrow hundreds of billions at 0%  that they then "invested" in the fed that paid them 3%. It has been discussed here by numerous authors . So has QE111. The fact that you didn't read any of them and  apparently didn't read any coverage of it anywhere since 2008 doesn't make you more knowledgeable. It makes you look like a large black hole void of knowledge. Working at a software company at some unknown time at some unknown place with unknown clients in some unknown job description doesn't do anything to elevate your credibility.

            This conversation has no more purpose because it's quite obvious , you have done no research, you didn't even bother to mention that Freddie and Fannie are in Receivership for buying way too much of this junk and that it would be in the interest of both institutions  to be offloading as much of the toxic waste as  they can back to the TBTF banks. .

             The FED who has done nothing but Bail out the banks would not want the banks to take precious cash it just printed up for them to buy these back and show lower profits which would put even more doubt in their long term or short term viability.

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