Feb 11. FNM/FRE to buy delinquent loans
Interest rate futures fell as Bernanke outlined exit strategy steps, including near term discount rate increase. Mediocre ten year auction was also a negative. Job Claims expected 467k and 30 year auction today.
–FNM and FRE to buy back delinquent loans, which they say will be less expensive than making guaranteed payments. ($127B and $70B respectively). Sort of ironic that on the same day the Fed outlines exit, the agencies step in. Almost sounds like the original TARP idea…buy bad loans. But these loans were already guaranteed by the taxpayer, so it probably increases prepayment risk for portfolios that involuntarily lose the bonds, and could tend to flatten curve. The gov’t is now overtly using the Christmas present it gave to itself courtesy of unknowing taxpayers, (lifted limits on the agencies), and expanding their balance sheets at taxpayer expense. MBS purchases simply move from one balance sheet to another.
–There was an interesting post on Zerohedge about Blackstone having trouble with IPOs, either pulling deals or offering large concessions. Perhaps more telling about the state of risk appetites than reflected in the equity averages.
–Stiglitz says it’s absurd to think US and UK could default because they simply print out of it. Also looks for more stimulus measures. “The prospects for a sound recovery of the banking system are very bleak.”
