Doctor Housing Bubble 03/12/08

[Crewleader]

Real Homes of Genius: Today we Salute you Artesia. Half-off Sales Going on in Southern California. Federal Reserve new Pawnshop Function.

The rally on Wall Street yesterday was the largest one-day jump in 5 years. Was the rally based on healthy economic news? No. Was the major increases based on a housing market turning around? No. The rally was based on the notion that the Fed was going to start exchanging Treasurys for mortgage-backed securities. So what exactly occurred yesterday? In essence, the Fed has decided to become Wall Street’s pawnshop:

The program will lend up to $200 billion of Treasurys to primary dealers, a group of 20 big investment firms, for a 28-day term. The firms can put up as collateral mortgage-backed securities issued by Fannie Mae and Freddie Mac, which generally are seen as safe because of an implicit government guarantee.

But in an unusual move, AAA-rated mortgage securities issued by banks will also be accepted. Many investors have shied away from these mortgage-backed securities because they fear defaults in the underlying assets will erode the value.”

http://www.doctorhousingbubble.com/real-homes-of-genius-today-we-salute-you-artesia-half-off-sales-going-on-in-southern-california-federal-reserve-new-pawnshop-function/

[papau]

1. I like reading him - but his loss analysis is badly flawed - underwater forfeit needs to be 4 or 5

times current rates for their to be a problem as to principle. If note buyers treat the paper as zero coupon bonds any possible realistic level of underwater homes is taken care of.

Of course much of the derivative paper will be worthless.