Simone Baribeau

How did MBS all go so very very wrong? Here’s the visual answer.

Yes, what you’re looking at is AAA rated securities being created out of debt that, if the system were to be under financial stress, would likely be (depending on the exact structure of the security) among the last 4 per cent to be paid. You buy a AAA security, and if the default rate on subprime mortgages hits 4 per cent, the security is worthless. Read more

Simone Baribeau

Fed leaders – past and present – have chosen today to be awfully talkative. And they haven’t at all times been in agreement with each other, either. So here are the highlights of today’s Fed speak.

Alan Greenspan, Former Fed chief, on the Bubble

Alan Greenspan, in an interview with Bloomberg TV, disagreed with SF Fed president Janet Yellen’s assessment that an increase in interest rates could have mitigated the growth of the housing bubble. He argued, as he has before, that a decrease in long term interest rates around the world led to the boom. Short-term interest rates were irrelevant.

Ok – so long-term interest rates are responsible for the bubble. We sure don’t want to encourage a housing bubble based on that again. Right?

Maybe not. Read more

James Politi

There was little news in today’s prepared testimony by Ben Bernanke, Federal Reserve chairman, on the exit strategy. Mr Bernanke chose not to talk about the discount rate except to say that lasts month’s increase should not be viewed as a monetary policy shift.

And he mostly went over what he had already said last month in terms of the sequencing of the tightening, with reverse repurchase agreements and term deposits ramping up before – or alongside – an increase in the interest rate on reserves. Scant if any change there.

But one shift in tone did stand out. Read more

Simone Baribeau

Smaller, according to recently released minutes of the FOMC. But how to get there remained an open debate.

Policymakers were unanimous in the view that it will be appropriate to shrink the supply of reserve balances and the size of the Federal Reserve’s balance sheet substantially over time.

They also agreed that the Fed should eventually hold only securities issued by the US Treasury. But that was as far as the consensus went. Significantly, most of the FOMC members argued that gradual sales of MBS and other assets “could be helpful.” The alternative, of course, would be to hang on to the securities until they matured, and not reinvest the proceeds. But here’s the dissent: Read more

Simone Baribeau

Ben Bernanke, Federal Reserve chairman, didn’t testify before the House Financial Services committee today on the central bank’s exit strategy. The committee meeting, like virtually everything else in the US capitol, was thwarted by the snow.

He did, however, release his prepared testimony, which received (as always) brilliant coverage in the FT, earlier on this blog, and in an editorial and other comment.

But I spent my day in a shutdown city. And in the spirit of passing time in a city where very little got done today, I’m choosing to write about what Mr Bernanke didn’t say, rather than what he did.

1. Mr Bernanke did not say how much will it cost the Fed to pay interest on banks’ holding of bank reserves. Read more

Krishna Guha

Boston Fed chief Eric Rosengren thinks mortgage rates will rise by 50 to 75 basis points in the spring as the Fed stops buying MBS.

That puts him on the high side of the internal Fed debate – various committee members see the likely impact in the 25 to 75 basis point range. Read more

Krishna Guha

The Fed also shaved $25bn off its planned agency debt purchases, writes Krishna Guha of the Financial Times Read more

Good news if you’re feeling flush: IPOs are on the rise and racehorses are on sale. India plans to launch energy-efficient trading scheme and financial innovation may again become popular Read more

Krishna Guha

Krishna Guha of the Financial Times says the key points to the FOMC’s statement that were no change to the extended period language, the completion of the asset purchase programme and no prospect of early rate hikes Read more

Krishna Guha

Krishna Guha of the Financial Times predicts the FOMC will stick to its current $1,450bn MBS and agency debt buying programme but stretch out the timeline past year end Read more

Krishna Guha

Now the Treasury Department has increased pressure on the Fed’s untested techniques for exiting stimulus measures, should the Fed perform trial runs, asks Krishna Guha of the Financial Times Read more

Krishna Guha

The Fed wants a clean break from the mortgage-backed security market. It will complete its current purchase programme. But then it wants to stop completely, writes Krishna Guha Read more