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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: pogbull who wrote (7047)	11/23/2002 3:31:51 PM
From: Elroy Jetson	Read Replies (2) \| Respond to of 306849

What he is saying is that he will use Federal Reserve reserves to buy 10 year treasuries from the open market and most importantly from the member banks. Good heavens, this underestimates the magnitude of the horror. The Fed is also legally entitled to purchase Fannie Mae bonds. Those Mortgage Backed Securities made up of 30 year mortgages. If the Fed were to buy mortgages at a premium on the secondary market for an effective yield of 1%, how many days do you think it would take for mortgage rates to approximate something like 1%? If the Fed chose to, they could drive lower mortgage rates to 1%, driving up the value of homes four-fold -- then at some point stop buying MBS, letting mortgage rates rise and home prices to fall by 90%. The potential mischief the Fed could create is almost unlimited.