Thursday, April 1, 2010

Fed Purchase Programs End

Over the past 12 months the Federal Reserve has purchased $1.25 trillion in mortgages.  They have, in essence, been the market for new loans.

Wednesday marked the last day of this year long program, meaning that they have removed themselves from the market.

Everyone is expecting major problems to come from the market with their absence, but I look at it as only handing the baton.  The passing will go to the Government Sponsored Entities (GSE's) Fannie Mae, Freddie Mac, and Ginnie Mae.

This was a pre-planned event and the foundation for this passing was poured on Christmas Eve last year when our leaders removed the loss ceiling from these entities.  (This means they can now lose an infinite amount of tax payer money with endless bail outs as we move forward)

And that is exactly what has happened.  They have become an endless black hole for money, and we continue to send them money every quarter to keep them solvent.

This week we found out that the seriously delinquent percentage of loans at Fannie Mae has climbed to 5.52%, double where it was a year ago.

With the Fed out of the way these monsters will become the entire mortgage market.  The losses they incur will be beyond any current estimates.  The government will continue to bail them out, and the Fed will continue to bail out the government with freshly printed bills.  It is all one beautiful circle of destruction.

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