The Fed to sell $20 Billion in Defective Mortgage-Backed Securities

by the LendingLies team

The Federal Reserve announced Wednesday it plans to slowly sell off the pile of Treasury and mortgage-backed securities trash it accumulated during three asset purchase sessions (aka QE 1, 2 and 3), marking an end to a key strategy in response to the financial crisis.  The sale of defective Mortgage-backed securities is the Fed’s “pass the potato” to the next sucker scheme and it will eventually end up badly for someone holding the bag.

 

Fed officials outlined separate paths for shrinking Treasury and mortgage-backed assets in its portfolio.  But WHY would the Fed sell off profitable, if defective, Mortgage Backed Securities?  It is likely because the Fed knows that it is only a matter of time before its racketeering scheme is fully exposed and it is attempting to distance itself before the next housing bubble pops, or the Fed is preparing for the next financial disaster that will require additional quantitative easing.

The Fed said it will sell off its mortgage-backed “assets” more slowly, at a rate of $4 billion a month, with the caps rising by $4 billion every three months until reaching $20 billion a month.  However, who will the buyers be?  Unsuspecting foreign governments, foreign banks or American pension funds?  It will be fascinating to see who is actually misinformed enough to purchase billions of dollars of  nonMortgage-unbacked securities.  It is considered fraud to pawn off securities you know are defective and are not backed by anything- not even an empty paper bag.

The Fed said the moves would begin later this year “once normalization of the level of the federal-funds rate is well under way,” but did not specify a date.  What is “normalization of the level of the federal funds rate” mean anyways?  There is nothing normal or logical about raising interest rates when the job report is poor, the economy sluggish,  inflation is in line, and the average American is barely getting by.

The Fed didn’t specify the final size of the balance sheet but said it would be “appreciably below that seen in recent years but larger than before the financial crisis.” The Fed gave themselves an out and stated they reserved the right to halt the balance sheet sale-off if there is an economic downturn, as well as lower interest rates once more if needed.  It is obvious the Fed is unable to predict economic changes because never in the history of mankind have fiat currencies ended well and never before has a “bank” “purchased” trillions of debt with money it printed out of thin air.

In a separate move, Fed officials also voted to raise its benchmark federal-funds rate Wednesday to a range of between 1% and 1.25%.  A move that will quickly impact America’s working poor and middle class who are barely making ends meet even with record low interest rates.  This decision should negatively impact auto and home loans, and create a new wave of defaults on adjustable-rate mortgages.

Three rounds of asset purchases, known as quantitative easing, swelled the Fed’s portfolio to $4.5 trillion in the years following the financial crisis. Since then, officials have been reinvesting securities as they matured in order to keep the balance sheet level.  It is mind blowing that the Fed purchased trillions of dollars in unsecured debt, but even more mind blowing that there are people/organizations who are willing to purchase this defective debt with the belief that the securities are backed by real estate.

At some point the Fed’s strategy is not going to work.  Then what?

The economy has been on life support since the 2008 financial crisis. The Fed has artificially pumped it up with unprecedented amounts of “stimulus.” This has created enormous distortions and misallocations of capital that need to be flushed.

Meanwhile, with zero and even negative interest rates in many countries, rates are the lowest they’ve been in 5,000 years of recorded human history.  This is uncharted territory. (Interest rates were never lower than 6% in ancient Greece and ranged from 4% to over 12% in ancient Rome.)

The too-big-to-fail banks are even bigger than they were in 2008. They have more derivatives, and they’re much more dangerous.   Allegedly, the Fed has been taking these actions to save the economy.  Right.  The Federal Reserve deliberately creates real estate bubbles to strip wealth, maintain control and make money. The actions of the Fed are in direct conflict with the goals of consumers (low inflation, low interest rates, lending availability).

In reality, the Fed is the primary cause of most of the harmful distortions in the economy.

You can blame the Fed for…

✔ Unlimited Fiat money printing

✔ Artificially low interest rates

✔ The boom/bust cycle

✔ Bailout funds to “fix” their errors

✔ The War on Cash

✔ Asset bubbles and Market Manipulation

Today the Fed raised interest rates and it is expected to further bolster the massive bubbles in real estate, stocks and bond markets.   The US government currently requires over $400 billion from taxpayers just to pay the interest on its debt. Tax receipts now exceed $2 trillion.

Even more dangerous are the social and political implications of the Fed’s actions as economic classes become more divided and wealth and wage disparity continues to broaden.  Remember that EVERYTHING the Federal Reserve does creates larger government, compromised freedom and the overall life quality decreases for EVERYONE but the 1%.

2 Responses

  1. The Federal Reserve is a operation well into RICO statutes. Should be outlawed all together.

  2. The Federal Reserve is criminal. Yellen is a scumbag.

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