No way out
March 24th, 2008 Alex JurshevskiThe markets seem to have shrugged off some of the fears on the back of the Feds recent unprecedented policy changes: the granting of access for non-banks and primary dealers to the Feds lender of last resort borrowing window and last weeks announcement of a swap of up to USD 400 Bn of Treasuries for illiquid and sharply marked down MBS securities and other non-bankable structured product.
In addition the policy measures also include the ultimate hypocrisy of announcing that the GSE’s (Fannie Mae, Freddie Mac etc) will soak up another USD 200 Bn or so of mortgage risk through a relaxation of capital requirements on these institutions. Nothing illustrates more clearly that Fed is running out of rabbits than the fact that these institutions are now viewed as part of the solution to the mortgage mess in spite of their widely publicized risk management and accounting problems and their reluctance to so far recognize their mark to market losses on their mortgage portfolios. A proper investigation of this situation may one day reveal that senior US policymakers and the management of these organisations knowingly allowed these firms to “trade while insolvent” in the vain hope that they could contribute to the bailout “plan”.
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