Matt Blackman

The Fed and BSC Collateral: Back Door Buying of Mortgage Securities

Forgive me for stating the painfully obvious but you are being incredibly optimistic here. Home price declines are accelerating and foreclosures are now beginning to hit the market in serious numbers. Last year one-in-15 homes listed were foreclosures. This year that number is one-in-nine. The takeaway is that mortgage defaults and losses will only increase as long as home prices fall - and now the probability for recession is running at better than 50% which will only make a bad situation worse.

Here is another fact of which many may not be aware. US banks are now exposed to $172 trillion in derivative risk and nearly 90% of that is concentrated on the balance books of the top five banks. At last check, JP Morgan Chase's derivative risk was above $91 trillion which is more than 73 times total assets... As Jeffrey Saut of Raymond James said in an interview last week when asked why he hadn't owned any US bank stocks for quite a while, he logically replied "we have no idea how to measure true banking risk."

Matt Blackman - TradeSystemGuru.com