Financial Myths - About the 2007-20?? Financial Crisis

Investments, gold, currencies, surviving after a financial meltdown
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Reality Check
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Financial Myths - About the 2007-20?? Financial Crisis

Post by Reality Check »

...
Myth: The Federal Reserve Board printed money ( paper or electronic - take your pick )
and purchased Toxic Assets from Banks.


This is a myth I believed for a year or two.

The truth is very different. The FED purchased only those Bank Assets that were of the highest quality.

The Federal Reserve Banks have printed, mostly electronic, U.S. Dollars ( expanded the U.S. Monetary Base ) and purchased Assets from the the Banks as part of QE1, QE2 and are continuing to do so again as part of QE3, but the FED did NOT buy the toxic assets from the banks.

Instead the FED purchased the best, U.S. Government guaranteed, assets from the Banks on the secondary market.

U.S. Treasury Debt ( Bills, Bonds and Notes ) plus only those Mortgage Backed Securities that are guaranteed by the U.S. Government were purchased.

In addition the FED purchased Agency Debt, meaning the debt of agencies that may, or may not be, part of the Federal Government, but who's debt is guaranteed by the U.S. Federal Government ( and was at the time of purchase ). This would be bonds issued by Ginnie Mae, Freddie Mac, Fannie Mae, etc.

All assets purchased, were purchased on the secondary markets as required by Federal Law.

Toxic Assets such as Private Label Mortgage Backed Securities which were also NOT insured by the U.S. government (nor insured by government sponsored entities such as Fanie Mae and Freddie Mac ) were NOT purchased.

Other Toxic Assets such as Auto Loan Backed Securities and Credit Card Loan Backed Securities were also NOT purchased.

This of course means the Toxic Assets remain on the Books of the Banks, unless the Banks have found other ways to pass them off to third parties.


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It should be noted that the FED did temporarily make emergency loans of money secured against Toxic assets as part of several emergency liquidity programs in the early years of the 2007-20?? crisis but these programs have wound down and those loans have been repaid with the exception of less than Thirty ( 30 ) Billion ( as of June 30th, 2012 ).
Links to supporting information:

PDF page 13 ( chart in upper left - dotted blue line ) ( chart in lower left is also useful); and,
PDF page 12, notes 7, 8, and 9,9,9 ( three line items have note 9 ) - of the following PDF document
http://www.federalreserve.gov/monetaryp ... 201208.pdf

PDF page 11 of the following linked document provides a summary of the Emergency Loan programs against Toxic Assets:
http://www.federalreserve.gov/monetaryp ... 201208.pdf

PDF pages 20 through 32 of the following linked document discuss the history and status of these Emergency Loans against Toxic Assets Liquidity Programs:
http://www.federalreserve.gov/monetaryp ... 201208.pdf

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