Go back a week to an article in the NY Times (Link). The guts of this story is that the Administration is working on a plan to Re-Fi residential mortgages on a massive scale.
When I first read this, I ignored it. The scope of the proposal was too large. There was also (IMHO) a fatal flaw. The thinking was that the jumbo ReFi would be made available to only those who had a mortgage that ended up with either Fannie or Freddie. I ask the question, "What about those poor odds and sods who have a mortgage with a community bank?” Do they get nothing while those who owe F/F big bucks get a break? Where is the fairness in that result?
Oh do c'mon.
Look, Bruce makes a decent argument for sourcing and such, and Zerohedge has been beating this drum too, but let's talk about what really happens if this occurs.
First, let's look at the article and presume a few things.
Ok, so first off, if we do this, follow Bruce's logic but remember one thing - not only does this saddle people with a new, no-amort mortgage that they now have to service from zero, but in addition it does a whole bunch of other not-so-nice things.
The premise here is that this "permits" a huge prepay of the Fed balance sheet, which it can then roll into Treasuries. But why would The Fed want to do this? Well, it might to get them off its balance sheet and fund the Federal deficit, but remember - the Fed likes the money and so does Treasury from the "rebates", which would end. Further, I wouldn't call a 10 year Treasury rate of 2.2% (as of today) something to be worried about when it comes to deficit spending!
It sounds entirely to fantasmagorial to me, and at best it gets you 1/2 of 1% of GDP if the figures provided are correct. That's not much, and I bet the damage done on a mark-to-market basis for pension funds and similar holders far outweighs that consideration.
You're free to believe in this one if you want, but not only do I not buy it, but I don't think it does anything of value for the economy or the homeowner, and it most-certainly does screw pension funds - including federal and state pension funds.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.
NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.
The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.
Looking for "The Best of Market Ticker"? Check out Ticker Classics.
Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.
The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.
Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.