What inflationists still haven't understood — pt2

Apologies for not having much time to write posts during the past several days... I've been busy... more than usual.

This is a quick follow up on the previous post made about a week ago.

The main point is that the Fed doesn't want to make losses, and that it will pass losses to the tax payer or any other entity it might find.

This first quote from Bloomberg shows that even if Mark-to-Market is not used, the Fed believes it is not losing money on the assets they bought from AIG and Bear Sterns.

The second shows that when they think they're going to come at loss, their going to cram it down the throat of the now-all-shiny-and-stable banks from which it purchased them.

This is critically important in order to understand that we're not going to have hyperinflation with the Fed alive.
July 29 (Bloomberg) -- The Federal Reserve raised by 3 percent its combined estimated value of investment portfolios acquired in the rescues of American International Group Inc. and Bear Stearns Cos.

The net holdings of three corporations set up by the Fed for the mortgages and securities it took on in bailing out AIG and Bear Stearns in 2008 rose by $2 billion to $69.1 billion, the Fed said today in a quarterly revaluation of the assets. The Bear Stearns investments increased to $29.4 billion, while the two AIG portfolios rose to $39.7 billion.

The increase in the value of the assets may support assurances by the central bank that taxpayers won’t lose money on loans it made in 2008 to create the corporations, which have an outstanding principal balance of $58.3 billion. The entities’ assets include mortgage-backed securities and portions of commercial loans for hotels.

Aug. 4 (Bloomberg) -- The Federal Reserve Bank of New York may seek to require banks to buy back its holdings of faulty mortgages and other assets acquired through the rescues of Bear Stearns Cos. and American International Group Inc., a spokesman said.

“We are involved in multiple efforts related to exercising our rights as investors in non-agency RMBS or CDO securities,” New York Fed spokesman Jack Gutt wrote in an e-mail, referring to residential mortgage-backed securities and collateralized debt obligations.

Steps include “those that require originators to repurchase ineligible loans,” Gutt wrote, referring to ones that aren’t backed by federal entities and violate bond contracts. “These efforts support our primary goal of maximizing the value of these portfolios on behalf of the American taxpayer.”

The Federal Reserve, Fannie Mae, Freddie Mac and other mortgage investors are seeking to force buybacks to rid their books of bad assets amid persistent losses from soured housing loans. Debt buyers and insurers, who can rescind their coverage, are combing through loan documents for faulty appraisals, inflated borrower incomes and missing documentation that can trigger contractual agreements to repurchase ineligible assets as insurers seek ways to void coverage or recoup costs.

Regulators of Fannie Mae and Freddie Mae last month issued 64 subpoenas to loan servicers and mortgage-bond trustees. Investigators are seeking loan files that may prove the two government-supported companies bought securities backed by loans that sellers should buy back because they misrepresented their quality.
Many of the assets in the Fed’s portfolio are distressed. About 78 percent of the assets backing Maiden Lane II, valued at $16.2 billion on the Fed’s balance sheet as of July 28, were considered junk bonds at the end of the first quarter, compared with 65 percent a year earlier, according to the Fed.

Violations of so-called representations and warrantees of loans sold directly to or insured by Fannie Mae and Freddie Mac cost the four biggest U.S. lenders about $5 billion last year.

The statement by the New York Fed, which is being advised by BlackRock Inc. on the portfolios, comes as investors in the almost $1.5 trillion non-agency mortgage bond market, which doesn’t have government backing, escalate efforts to minimize their losses.

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