Mortgage bonds are going to need government support in these times of stress says Ben Bernanke, Federal Reserve chief.
There’s also the option of covered bonds.
Real estate values are plunging and foreclosures are way up.
First, earlier this week, Bloomberg carried a piece showing why LIBOR was a total and complete sham. In addition, it now turns out like dummies Mutual Funds are buying at the same exact time – like clockwork -Hedge Funds are selling. That is not a smart investment strategy either. Given the low volume, that results in high volatility.
Two, on the Credit Default Swap front, it appears that there may finally be an exchange-clearinghouse by the end of the year. Exchange operator Intercontinental Exchange Inc. (ICE) and the Clearing Corp. said Thursday they signed memorandums of understanding to develop a clearinghouse for complex insurance instruments known as credit default swaps.
As part of the agreement, ICE will acquire Clearing and form ICE US Trust and it is scheduled to launch by the end of the year, will have the backing of nine banks heavily involved in the trading of CDS’ — Bank of America Corp., Citigroup Inc., Credit Suisse, Deutsche Bank, Goldman Sachs Group Inc., JPMorgan Chase & Co., Merrill Lynch & Co., Morgan Stanley and UBS. Credit default swaps have played a prominent role in the mushrooming credit crisis that in the past month led to Lehman filing for bankruptcy protection, a government rescue plan for insurer American International Group Inc. and Merrill Lynch & Co. selling itself to Bank of America Corp. As we know, since the market for the swaps is so much larger than the initial loans they were meant to insure, credit default swaps have magnified risk exponentially.
Having been vindicated on those issues, as I want to discuss the “newest” FDIC mortgage foreclosure relief plan and why this is not likely to work but one that is being bandied about might. As I have noted in prior postings, while the problems associated with residential foreclosures are real, dealing with them is not easy. Unlike the old days where individual mortgages were traded in a secondary market, mortgages re now securitized such that they are so sliced and diced figuring out to unwind them is a major headache until the foreclosure happens. I should add that because investors could no longer put a value on the securities which were backed by pools of mortgages that spread the problem.