Monday, February 1, 2010

Circularity



The Treasury and the Federal Reserve, through GSEs such as Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks, through entities such as Ginnie Mae and also through emergency relief systems has managed to support and in effect, purchase and hold a large chunk of MBSs in the US.


The picture is from the federalreserve.gov website.
http://www.sigtarp.gov/reports/congress/2010/January2010_Quarterly_Report_to_Congress.pdf

The picture above shows amounts in $ billions
The total exposure is more than $ 8 trillion.
That constitutes the second largest economy in the world - after USA

Food for thought.
People are not going to receive limitless support for their houses and financial institutions are going to get burnt with any significant movement in interest rates, inflation or any meaningful shock.
There will be a great rumble, and that is without doubt.
We are just driving in the same car as we used to before 2007.
But now, the hill is steeper and the car is faster.
Let's see how this ends/ changes.

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