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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Think4Yourself who wrote (84819)8/10/2007 9:27:30 AM
From: Paul Kern  Read Replies (2) of 110194
 
Questions for the experts: The fed (Central Bank??) bought 19B in MBS this morning (from banks?). Is this a temporary loan to the banks? What happens to the securities? Where do they end up and who ends up holding the bag if they lose value?

A repo agreement is, essentially, a loan, not a purchase. The Fed accepted MBSs as collateral for a three day loan. On Monday, the money must be returned and the paper goes back to the holder unless the Fed renews the repo.

The problem is the Fed doesn't have any better idea than we have as to the real value of this paper and probably accepted it at face value.
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