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  • Wall Street Breakfast: Must-Know News [View article]
    The Fed entering the MBS market on this kind of scale is a new stage in this mess we should all watch closely. There are a few considerations:

    1) This will weaken the Fed's balance sheet further, exposing them to liabilities that may prove destructive,
    2) Buying MBS will flood the market with liquidity, but as we're finding out with the bank bailouts, liquidity has few productive uses currently,
    3) Over-capitalization of the mortgage/real estate markets largely caused the current financial dilemma-more of the same inhibits the markets ability to shed over-capacity

    My take is that these actions will cause more harm than good, likely prolonging the down time and unduly rewarding investment banks, other financiers, and real estate participants who should have otherwise been forced otu of the market.

    I prefer sharp correction followed by healthy realignment of capital and subsequent growth, than this mentality of bailing everyone out, raging against reality and trying to prop up bad investments indefinitely.
    Jan 06 11:49 am |Rating: +2 -1 |Link to Comment
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