Quote Originally Posted by sbouslog View Post
We do have a bit more added risk by doing this. I dont believe that we are using derivatives to back these MBS's though (which makes it different then pre 2008).

Let look at what is in the MBS's. To obtain a new home loan you have to have some skin in the game these days. You also have to have 2 years of tax statements and all sorts of other documents. These are not the same shady lending practices that were going down 8 years ago.

So the US is selling 30 year treasurys at 2.95% and buying these MBS's at 3.4% (give or take a little). Unless we have another huge drop in the housing market this plan should work pretty well and generate a profit. ((.45%/12) X 40 billion per month). You can do the math.

This should stabilize housing for the next 4 years or so. Now they just have to find a way to stabilize the job market. Keeping the interest rates low will stimulate some job growth in the construction, commodities, and finance sectors.
Stabilizing housing is the PROBLEM, though.

You can only defy gravity for so long. The housing bubble never deflated all the way; the govt has been busy (through putting pressure on the banks to start loaning again and various other laws) propping up housing prices.

This is a short-term play. It gets votes with home owners, but the bottom line is: lots of people have homes that have no business having them, and prices are still way higher than they will be when it all comes crashing down, either in absolute or relative terms (ie either the dollar value of your home will come way down or the value of the dollar will come down.)

The govt has no business propping up prices anywhere. It won't last, and it's long-term harmful. It'll end poorly.