Oh My God! They Killed MBSs!
See what happens when you interfere in markets?
Let me let you in on a little secret, lean close. Especially you, Timmy. Markets are frigid. You can lick her neck all you want, she ain't spreading her legs for you or anyone and you are just going to have to accept that. There isn't enough liquidity in the world to get her warmed up again, your face makes her want to barf. Nice try though.
So what the Powers that Be have done, essentially, is rape the shit out of frigid markets anyway in the hopes that somehow she'll suddenly start gasping in ecstasy. Pffft, as if. Keep jerking it, Timmy, ZB, Larry, and even pretty boy OMG Obama, she doesn't want any of you. She wants to curl up in a ball and get some fucking sleep, you pricks have been poking at her for over a year now and still don't get the point. She's just not that into you!
The $1.7 trillion mortgage securitization market is still a mess, despite (or in part because of) the Federal Reserve's $700 billion splurge into the market. But another reason may be Treasury's decision to undermine private mortgage-backed securities (MBS) contracts.
BlackRock Inc. Chairman Laurence Fink went so far recently as to call this "one of the biggest issues facing American capitalism." He's worried that to protect banks from billions of dollars more in writedowns on bad second liens (a.k.a., home-equity loans), Treasury is trashing private contracts. "There is modification going on protecting our banks, protecting their balance sheets" and "I'm just very worried about it." Until that issue is cleared up, he says, we won't "get a vibrant securitization market back."
One reason the MBS market blossomed in the first place is because investors who bought a mortgage security believed that first mortgages were senior to second liens. In the event of a foreclosure, second liens would be extinguished first and holders of the first mortgage would get what was left because that's what the contract said.
This changed in April when Treasury announced that instead of foreclosing on delinquent borrowers and wiping out second liens, mortgage servicers (mainly the biggest banks) would be given incentives to modify both loans, thereby spreading the losses. In mid-August, Treasury announced the details of its "Second Lien Modification Program," or 2MP, calling it "a comprehensive solution to help borrowers achieve greater affordability by lowering payments on both first lien and second lien mortgage loans."
Treasury says it is merely trying to help borrowers stay in their homes. But there's little evidence that modifications are stabilizing the market. Treasury's recent release of second-quarter mortgage loan data showed that redefault rates are stubbornly high, even though most new modifications now provide for lower monthly payments of interest and principal.
It gets better. The latest batch of FOMC minutes (released today via the Board's website) show the cracks are starting to divide Fed officials. MarketWatch doesn't name names but we know who they are referring to when they say "Some Fed officials wanted to boost the size of the Fed's purchase of mortgage securities, while one wanted to end the program early." Oh please, MW, why be coy about it? We all know who you are talking about.
The minutes of the Federal Reserve's latest policy meeting reflect the disputes that have flared in public since the closed-door meeting ended on Sept. 23. The wide range of opinions about the economic outlook and the Fed's unprecedented policies had been expected by Fed watchers given the "cacophony" heard from officials in their public remarks. While most Fed officials agreed that a recovery had started, there was little agreement about the strength of the expected upturn. There was a "range of views" expressed about the Fed's unprecedented credit-easing policies. Some Fed officials wanted to boost the size of the Fed's purchase of mortgage securities, while one wanted to end the program early. There was no appetite for hiking rates at this meeting because "the cost of the economy turning out to be weaker than anticipated could be relatively high," the minutes said. The Fed decided to extend its purchase of MBS and asset-backed securities into the first quarter to smooth them out and avoid any sudden end that might jolt markets.
When the entire thing falls apart, we know who not to blame.
Anyway, I heard someone caught up in the orgasmic delusion of a 10000 Dow say that they smelled "singed bear fur" - that's funny because I see Rocky Mountain Oysters on tonight's dinner menu. Take that, bitches.