Wednesday, February 05, 2014

The Federal Reserve's Nuclear Option: A One-Way Street to Oblivion

The Federal Reserve's Nuclear Option: A One-Way Street to Oblivion | Zero Hedge:

"The heart of quantitative easing and ZIRP (zero interest rate policy) is the Fed's direct purchase and ownership of assets: residential mortgage-backed securities and Treasury bonds.

The Fed has been operating not as the buyer of last resort but as the bidder who buys interest-sensitive securities to keep interest rates near-zero (known as financial repression).

 The Fed's purchases of impaired mortgages has also made its balance sheet "the place where mortgages go to die:" the Fed can hold impaired mortgages until maturity, effectively masking their illiquidity and impaired market value."

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