Quantifornication refers to the insane fiat dream that the monetary policy employed by the Fed can fix the predicament we are in.
Overheated US housing prices started dropping in 2006. Homeowners were going underwater (they owed more than the house was worth) and many had questionable credit – “fog the mirror loans” were common, if you breathed you got a loan.
*Banks sold these mortgages to agencies like Fannie Mae and Freddie Mac.
They bundled the mortgages with other loans bearing similar interest rates and then sold them as Mortgage-backed securities (MBS), so called because their value was backed or secured by the value of the underlying mortgages.
An MBS is therefore a derivative because its value is derived from the underlying asset - the mortgage that was often underwater and held by someone with bad credit.
*The Residential Mortgage Backed Securities (RMBS) Working Group, a state-federal task force created by President Obama, just announced their first legal action.
“Co-chair, New York Attorney General Eric T. Schneiderman has filed a Martin Act lawsuit against J.P. Morgan Securities LLC, JP Morgan Chase Bank N.A., and EMC Mortgage LLC for making fraudulent misrepresentations and omissions to promote the sale of residential mortgage-backed securities (RMBS) to investors.
According to Attorney General Schneiderman's lawsuit, these defendants deceived investors as to the care with which they evaluated the quality of mortgage loans packaged into residential mortgage-backed securities prior to Bear Stearns & Co's collapse in early 2008, incurring losses that have totaled approximately 22.5 billion to date.” MENAFN.com
The Federal Reserve started easing monetary policy aggressively throughout 2008. By December of 2008, the federal funds rate was between 0 and 1/4 percent.Additional stimulus was injected by expanding the holdings of longer term securities.
The System Open Market Account (SOMA) purchased mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae (agency MBS).
"On numerous occasions in 2008 and 2009, the Federal Reserve Board invoked emergency authority under the Federal Reserve Act of 1913 to authorize new broad-based programs and financial assistance to individual institutions to stabilize financial markets. Loans outstanding for the emergency programs peaked at more than $1 trillion in late 2008." Government Accountability Office (GAO)
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