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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: Elroy Jetson who wrote (77757)	4/16/2008 11:23:39 AM
From: mishedlo	Read Replies (1) of 116555

Fed Accepts Dodgy Collateral in Race to Bottom: Caroline Baum One year ago, Treasury securities accounted for 92 percent of the Fed's assets. Now it's down to 65 percent. bloomberg.com Short Memory Both the idea of accepting collateralized debt obligations and the timing of such an action strike many observers as bizarre. "We just went through a period of bundling lousy mortgage loans into pools and on the theory that few would fail, and labeled the package AAA," said blogger Mish Shedlock, an investment adviser at Sitka Pacific Capital Management, in a post on the latest Fed Swap-O-Rama. ``That experiment didn't go so well. "Now we see CLOs being created for the express purpose of swapping to the Fed," he wrote. "There is no market for the underlying loans. Yet Moody's, Fitch and S&P are supposed to rate this garbage investment grade so it can be swapped with the Fed." Borrowing at the PDCF averaged $32.6 billion last week, according to the Fed. Federal Reserve Bank of New York spokesman Calvin Mitchell said the Fed "will not disclose or comment on the use of this facility by individual institutions."

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