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Fed's Answer-throw $200 Billion at it! (and see if it goes away)

In an effort to increase liquidity the Fed is initiating a program to make available $200 Billion in funds to primary dealers, that would be large investment firms which deal directly with the Fed. Seems like some serious change to me.

The big question is will it help?

On the surface you gotta believe the answer is of course, but then again maybe not. The Term Securities Lending Facility (TSLF) will accept as collateral pledged securities such as fedral agency debt, and federal agency residential mortgage backed securities. It seems like we're on the right track here.

But is easy money the answer?

CNNMoney.com stated that "the Fed has been working to pump billions of dollars into the banking system to aid an economy rocked by the subprime mortgage crisis and the tightening of credit." I hope that they're not trying to flood the markets with available cash to loosen the guidelines and lead us back to irresponsible lending practices. Many times when I hear about restrictive guidelines I like to stop and think, because they are restrictive compared to the loosey-goosey guidelines we had for subprime loans, but not necessarily so restrictive when compared to historical guidelines, or what many today may consider prudent guidelines. That being said, yes I know that we can't qualify as many buyers with today's standards, but let's face it some of the buyers we gave loans to previously, we shouldn't have. Just take a look around.

CNNMoney.com further stated, " a meltdown in the housing and credit markets has made banks and other financial institutions reluctant to lend to each other." To me this is the real issue. The financial institutions are not anxious to repeat their mistakes.

Well, good for them!

I'm very happy to hear that.

Okay, so big changes are taking place, and they will not happen overnight,

even if you throw $200 Billion at them!

It's not going away right away, there's no quick fix.

It's going to take time.

Posted by Jay Beckingham on 03/11/2008 11:14 AM

Comments (6)

florida, southwest florida, cape coral, ft myers, lehigh acres, estero, bonita springs, naples, port charlotte, punta gorda, tampa, realtor

6 Comments on Fed's Answer-throw $200 Billion at it! (and see if it goes away)

If only they would loan me a billion, I think I could fix the problem!

03/11/2008 11:35 AM

by Michael Creel (Brio Realty Inc.)

Michael,

do ya think? huh.

don't forget to share now.

jay

03/11/2008 11:44 AM

by Jay Beckingham (Allied Home Mortgage Capital Corp.)

Hi Jay, I just was reading about this. So where are the Feds getting the money--from the Chinese?

03/11/2008 02:27 PM

by Leslie Bloss, Seattle Real Estate Professional (Brio Realty)

We just print money now remember FDR initiated the way to remove us off the Gold standard. This is one of the reasons our dollar continues to DE-value.

Jay my first reaction to this is similar to yours not really sure. But my wife made a comment that if the fed loans are overnight loans to banks by letting them have up to 4 weeks to repay is not our federal government now in the mortgage security business. I though that was kind of interesting since in just a very short time these banks have become very cash strapped. In a month could it not get worse? What then?

Does federal reserve take collateral in the form of these mortgage securities if banks cant pay back the loans they received. This seems fairly unprecedented. If this happens are taxpayers now in the Mortgage business?

We'll just have to see what happens and pray to God things turn around soon.

03/11/2008 02:43 PM

by Jason & Deanna Long Breckenridge Real Estate (The Long Group)

Jason & Deanna,

here's a scary thought. would it be in the investors best interest to default and surrender the security?

this may please the stock market momentarily, but i'm in southwest florida and i don't see how it helps at all.

we have a ton of investor owned properties with mortgage balances exceeding property values. they're going to foreclosure. they are being given up.

we further have subprime 100% borrowers and their equity position is the same. the economy has slowed due to the reduction in the construction industry. many are jobless and just can't pay at any rate.

only time will solve this problem. there's nothing the fed can do.

Jay

03/12/2008 07:50 AM

by Jay Beckingham (Allied Home Mortgage Capital Corp.)

Leslie,

fire up the printing presses. it may take a few days to print $200 billion.

Jay

03/12/2008 07:51 AM

by Jay Beckingham (Allied Home Mortgage Capital Corp.)

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