jepittman

AIG Becomes the Fed’s Vehicle to Buy Toxic Assets

Why does the Fed need to force 'insolvent commercial banks' to buy treasury securities to 'fund the stimulus' when the entire free market has been falling over each other to buy them? Furthermore, if treasuries needed a bid, the Fed could buy them themselves. They wouldn't need to coerce banks to do it.

'Crowding out', which refers to higher risk securities being neglected in the marketplace due to demand for lower risk securities (treasuries), has been occuring lately. However the Fed is relentlessly working to unfreeze these markets by bidding for a variety of assets such as commercial paper, mortgage backed bonds, and collateralized debt obligations (CDOs). Spreads between yields on these securities and comparable treasury bonds and notes have been narrowing lately, suggesting the Fed's actions are beginning to work.

These are precisely the kinds of actions a responsible Central Bank engages in to reduce the severity of economic downturns such as we have today.


On Dec 28 10:39 PM Anthony Alfidi wrote:

> If you like this, you'll love the next phase of the Fed's quant easing
> strategy. All the Fed has to do is make new loans to insolvent commercial
> banks with the stipulation that they buy Treasury bonds (funding
> the fiscal stimulus) and hold those bonds as loan collateral with
> the Fed. Presto! The economy is stimulated and we get the "crowding
> out" effect even with record low bond yields.