Congress is being asked to provide $700 billion by allowing the Treasury Department to sell debt and using the proceeds to purchase illiquid mortgage debt. This is similar to what the Federal Reserve does every day with two exceptions: 1) normally the Fed makes, in essence, short-term loans to members to give them liquidity and reserves. The present situation is not a loan but an outright purchase of assets; and 2) the extraordinary events of the past few months have depleted the reserves the Fed can use to perform market operations. What I find most disconcerting about the present discussion is that this $700 billion is viewed as if it is going to be spent and gone. This $700 billion should in no way be looked upon as gone. Treasury should do this in a manner so that the net cost to the taxpayers is either zero or this is in fact profitable to Treasury. How? We are addressing illiquid mortgage debt, and illiquid residential mortgage debt can be viewed as falling into three...
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