As part of “Quantitative Easing,” the Fed purchased $1.02 TRILLION worth of “Agency MBS securities” (aka home mortgages) in the open market. The Fed will complete their purchases within the next 90 days. As the chart above shows, they will have purchased a total of $1.72 TRILLION of securities including $1.25 TRILLION home mortgages.
Putting this in perspective:
In 2009, home buyers borrowed a total of $1.01 Trillion. ( See: http://www.sifma.org/research/pdf/Mortgage_Related_Issuance.pdf for the data.)
The Fed has purchased EVERY new home loan made in 2009, and they pegged mortgage rates at an entirely arbitary yield !
Ladies and Gentlemen: The Federal Reserve has left the building!
Once the Fed steps back from the mortgage market, the “free” market will re-price home mortgage rates…presumably at higher yields. Rocky doesn’t know if the upward move in mortgage rates will be violent or gradual, but it will happen — and it will dwarf the effect of Congress’ homebuyer tax credits. It behooves homebuyers to bear this in mind when they consider when to lock in a mortgage rate.
[Disclosure: Rocky acknowledges that the one Elvis reference in this post was weak. So he'll add a second one: Elvis said, "The only thing worse than watching a bad movie is being in one."]
Rocky sadly notes that it’s now more profitable to invest with a BIG crook, than to invest in a BIG company.
Bloomberg News reports that Representative Gary Ackerman (D, NY) introduced a bill giving preferential tax treatment to de-frauded investors in Bernie Madoff’s Ponzi Scheme.
“The bill would extend to 13 years the time for which investors may obtain refunds on taxes tied to the phony profits,” the New York Democrat said in a statement. Current rules limit investor refunds to the past three years.
Rocky highlights the economics of this new Government bailout:
Investors who bought $1,000,000 of stock or preferred shares in:
(1) Washington Mutual
(2) IndyMac Bank
(3) Fannie Mae
(4) Freddie Mac
(5) Lehman Brothers
have been COMPLETELY wiped out.
These investors receive no tax credit for any retained earnings reported by these companies. It’s a 100% capital loss. Gone. Zilch. Nada. Diddly-squat. Zip. Goose egg. Hill of beans. ZERO!
In contrast, investors who gave $1,000,000 to Bernie Madoff, will receive a $500,000 insurance payment from the SIPC. They also keep any income received before the Bankruptcy Preference Claim period. And, they get an unlimited tax deduction for qualified “theft” losses. (This is under the current law. Rep. Ackerman wants to give a special new tax hand-out to Bernie’s investors.)
Rocky’s suggestion to Rep. Ackerman: Go ahead and change the tax code — but eliminate the current $3,000 per year capital loss limit for EVERYONE.
If the Government wants to be Rocky’s partner on 100% of the profits, it should be his partner on 100% of the losses too.