"New Fed Proposal to Bankrupt America "

Quote

Yet I just read an article about a forthcoming paper coming from two Fed economists recommending that the federal government guarantee all asset backed securities.

Wayne Passmore and Diana Hancock, the associate director and deputy associate director, respectively, in the division of research and statistics at the Fed — argue that an explicit backstop of certain asset-backed securities could ensure the stability of the system in future financial crises and help eliminate the concept of "too big to fail" institutions.

"People who hold mortgage-backed securities or asset-backed securities are happy as long as they know there is no credit risk," Hancock said in a recent interview. "When they're really concerned that there is credit risk, they may run. That's not good for a securitization market."

To protect against such securitization runs, which can dry up credit availability, the two economists said an insurance fund should be created to cover catastrophic risks on a wide range of asset classes, including mortgages, credit cards and auto loans.

"We are arguing we should create an FDIC-like entity to explicitly price this form of guarantee," Passmore said in the same interview. "It will capture many of the benefits that have been associated with the GSEs, they will allow the government to accumulate an insurance fund, or reserves, to pay for supporting the fund up front. That's really the essence of why people want the government in the mortgage market. It defines well what the government's role will be."

Just the other day Pimco's Bill Gross said:

"Without a government guarantee, mortgage rates would be hundreds -- hundreds -- of basis points higher, resulting in a moribund housing market for years," Gross said.

He said Pimco would not consider investing in a private, or privately insured, mortgage pool unless it was accompanied by 30% down payments -- far above the current norm.

It is dismaying to see famous financiers and respected economists have so little faith in, or so little knowledge of, how free markets work. The bond market works well precisely because there are no government guarantees. Investors seem to be able to assess and accept risk.

http://seekingalpha.com/article/222385-new-fed-proposal-to-bankrupt-america

Why should taxpayers get stuck with more bad loans? Did those managing mortgage companies ever wonder about fraud? Lies on applications? Reasonable background checks? Just give out money and repackage?

It seems like the biggest problem is that mortgage makers didn't risk their own money. All those folks that bought the packages didn't RISK THEIR OWN MONEY.

Hasn't 'our financial' system figured out that gamblers who gamble with other peoples money often lose? Have no skin in the game?

What's wrong with this picture?

If you're not a good credit risk, why should a bank or mortgage company or taxpayers give you a loan?

I remember the days when folks worried about maintaining a good credit rating.

Why bother? Seems like Washington STILL thinks everyone should get a house, and another house, and another house, regardless of any defaults.

Why isn't the Fed or Washington expecting home buyers and financial businesses to have skin in the game?

Didn't they learn their lesson? Or is the lesson that taxpayers/citizens are stooges that can be taken advantage of over and over?

GM buying a credit company that focuses on substandard risks?

When does it end?

just my humble opinions!!!