You’re right. There’s still business to do. And it will get done, just at a higher cost, which I think is the right thing for this mess regardless. Remember that this whole mess started because credit was available on too easy terms and that the interest rates were too low, thus sparking the housing bubble.

Furthermore, I’m not sure that the Fed’s intervention is likely to save housing anyway, and indeed, I doubt that was the Fed’s point (since when have they started caring about homeowners rather than the markets?). Firstly, the problem with the current housing market is that prices are too high, and that the previous easy terms on which they were financed will not (and should not) come back. Secondly, many homeowners got loans they did not really qualify for because of loose standards. Those standards are tightening up, leaving a lot of people unable to refinance or buy a house.

In the end, the current mortgage market is being affected much more by the turn to stricter lending standards (no more liar’s loans, zero money down, teaser rates, or pie-in-the-sky appraisals), than by interest rates per se (which themselves are affected much more by long bond yields which continue to rise as inflation increases).

In other words, I think the housing market’s goose is cooked, regardless of what the Fed or Congress does at this point. Given that premise, the only thing that intervention in the agency debt markets does is save Wall St.

What really does this move do to ameliorate the crash in home prices ? Nothing. Home prices are still too high and the mortgage securities are worth less each day.

The owners of these securities have dug in their heels, waiting for the bailouts and expecting full payment for their bad investment choices. The Fed is essentially covering a margin call for the speculator crime families.

Ultimately, the crime families are going to have to take a huge haircut and underwrite below market assumable loans to make this junk really AAA. When does that move start ? Shouldn’t it be part of the bailout ?

Whats the main difference here?

This implies that Fannie and Freddie have no business left to do, which is obviously false. People always need mortgages, whether for purchases or refinancing.

But quite frankly, what is the public getting in return for this $400 bil (and counting) federal guarantee?

Right now, while the bankers are crying uncle is the best time to force some much needed regulations and restrictions onto the industry. The only way to do that is to get Congress to explicitly provide the guarantee that the Fed is currently doing, and include in that legislation reforms of the industry.

Right now, the Fed has extracted nothing from the industry in exchange for this largesse. And once the industry is back on its feet, the cries of “Govt get off our backs” will inevitably start again.

I realize that creating a new regulatory scheme out of whole cloth will take some time. But the upside to waiting is that the banks’ positions are likely to get weaker still, which means their bargaining power vis-a-vis Congress will be even worse. As for the markets themselves, I don’t think a rise in risk premiums for agency debt is a catastrophic scenario for the typical Main St. borrower who’s already locked in his mortgage terms. If it leads to the implosion of a bunch of hedge funds, why, that’s just a bonus in my books

So then will the banks actually sell these treasuries to get cash to pay the bills, or just count them as part of their reserves that they lend against (or make the balance sheet look less flimsy on loans already outstanding)?

When the fed lends in treasuries, do they expect to get paid back in treasuries?

If so, any bank that borrowed under this facility with the intent of spending the money would be counting on prices going down in a month so they could buy up enough to return them? Kinda like a put option?

And by flooding the market with treasuries the fed hopes to drive prices down and yields up? Isn’t that the opposite of what they want (to bring down yields on the 10yr)?

- How much detail does the Fed disclose with respect to the collateral it takes in these operations? Will there be even a high-level breakdown between Treasuries, Agencies and private securities?