Can the FED force banks to take back MBS trash?

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Stan Robertson's picture
Stan Robertson
Status: Platinum Member (Offline)
Joined: Oct 7 2008
Posts: 665
Can the FED force banks to take back MBS trash?

I am sure that this topic has been discussed previously, but if so I have missed it. In recent months the FED has purchased big chunks of  mortgage backed securities at face value from the big banks. But the biggies aren't lending, at least not to Main St, and are making bundles with hedging activities. What becomes of the MBSs? Can the FED get them off its balance sheet by forcing the banks to buy them back? If not, can their reduced values be ignored forever? Can the FED hold them indefinitely? Can they just effectively manufacture dollars to pay for the losses?

 

Carl Veritas's picture
Carl Veritas
Status: Gold Member (Offline)
Joined: Oct 23 2008
Posts: 294
Re: Can the FED force banks to take back MBS trash?

Stan,

The Fed used to only deal with government securities and bail outs were reserved for the banks.    Public anger and politics forced its hand to go where it has never gone before..     When and how they dispose of toxic waste in their balance sheet is a good question.   Not like theres a ready market to price them but thats probably the reason the Fed stepped in to save the banks.  

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