The government has already bought mortgage-backed securities worth $1.4 trillion, now Fed Chairman Ben Bernanke says it may be the time to buy more.
In effect, the federal government is assuring that MBS investors will have no risk. If the securities are good there's no reason to sell. If the securities are bad, taxpayers will buy the paper and face any losses. For investors, it's heads we win but if we come up with tails then it's taxpayers who lose.
Investors with troubled mortgage-backed securities could sell their interests to Uncle Sam at face value. This means that once sold the investors would have 100 percent of their cash and the Federal Reserve would have pretty pieces of paper.
The government has already bought mortgage-backed securities worth $1.4 trillion, now Fed Chairman Ben Bernanke says it may be the time to buy more.
In effect, the federal government is assuring that MBS investors will have no risk. If the securities are good there's no reason to sell. If the securities are bad, taxpayers will buy the paper and face any losses. For investors, it's heads we win but if we come up with tails then it's taxpayers who lose.
Investors with troubled mortgage-backed securities could sell their interests to Uncle Sam at face value. This means that once sold the investors would have 100 percent of their cash and the Federal Reserve would have pretty pieces of paper.
http://www.ourbroker.com/news/why-bernanke-is-wrong-on-mortgage-backed-secrurities-110311
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