The Fed today announced that it is priming the credit bubble pump by lending banks another $200 Billion dollars (short term 28 day paper). Of course, the banks are using MBS (mortgage backed securities) as the collateral for these loans.
So... what does this all mean, and is it really a sign that the Fed is "helping" the markets? Consider this report from Housing Wire: (bold is my emphasis)
IndyMac Bancorp, Inc. said Tuesday morning that “panic market conditions” surrounding mortgages have turned the capital markets onto their head, and that as a result the thrift would likely miss its first quarter earnings guidance. The bank had originally forecast a net loss of $38 million for the quarter in an investor presentation on February 12.
In a filing with the Securities and Exchange Commission, IndyMac noted that “spreads on everything” had reached “near all-time historic levels,” and that the Pasadena-based thrift could not estimate the effect of market turmoil on its MBS portfolio.
“Spreads between Treasuries and other instruments, in particular, non-GSE mortgage assets, are difficult to ascertain, given the fact that there are virtually no new non-GSE mortgage securities issuances and the only resale activity is a handful of distressed sales,” the company said in its filing. “As a result, the financial impact of this spread widening on Indymac is difficult to estimate at this time, but it is expected to have a negative effect on the value of IMB’s MBS portfolio.”
Seventeen percent of IndyMac’s MBS portfolio is classifed as “trading” for accounting purposes, which means that write-downs to this portion of the portfolio will directly impact earnings for the quarter.
The thrift said 86 percent of its total MBS portfolio was comprised of Alt-A-backed securities; this securities class, in particular, has been roiled in the past week amid rumors that UBS AG dumped more than $24 billion of investment-grade Alt-A RMBS earlier this month.
For more information, visit http://www.indymac.com.
So... what exactly was going on here?
Easy... the markets have frozen solid. There is no value in MBS's because no one knows what they are really worth. The big issue, however, is that banks are out of money. Plain and simple. Margin calls are coming in left and right on leveraged assets with evaporating values. They have lots of toxic paper to sell (paper they've basically fabricated value for) and no takers. None. Zip. Zero. So.... in order to keep the markets liquid, the Fed has agreed to take this paper as collateral for loans to keep cash in the vault, so to speak.
This wasn't a move to stabilize, this was a panic move by the Fed to buy a little more time to see if their failed monetary policy (you know, lower rates and throw gasoline on the inflation fire... almost literally) will work.
And don't you just love the traders excuse to rally the Dow (JUST 30 STOCKS IN THE DOW FOLKS) over 400 points? Nice.
Won't work... liquidity isn't the issue. Insolvency is. They are pouring gasoline on a fire to put it out. Maybe they think they can douse it. That actually happens in the real world. If you have a fire and pour too much of anything on it, you smother it. Trouble is, they don't have enough to pour on it, and the little they do have continues to feed the fire.
They'll have to start issuing more bonds to keep the latest ponzi scheme going, and if they do that, watch out for real interest rates.... can you say SKY HIGH?
This train wreck keeps getting better and better.
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