Friday, July 11, 2008

Bernanke To Fred and Fannie: The Money Window Is Open

Reuters is reporting:

Federal Reserve Chairman Ben Bernanke told Freddie Mac chief Richard Syron that his company and Fannie Mae could take advantage of the emergency discount window, according to a source familiar with the conversation.

The source said that Bernanke and Syron spoke by phone Thursday afternoon and the central bank chief said in that call he intended the discount window to be opened if necessary to the two largest U.S. mortgage finance companies.

In the junk mortgage loans to date that the Fed has acquired, the Fed has been either exchanging Treasury securities for junk mortgage paper or selling Treasury securities to raise cash. As we have pointed out, as of April 3, 2007, the Fed held $781 billion in various Treasury securities. They are now down to $479 billion in Treasury securities. With trillions of mortgages outstanding by Fannie Mae and Freddie Mac, a bad hour by just one of them could absorb the entire balance of remaining Fed Treasury securities, then the only option the Fed will have on bailouts is the printing of more money, lots more.

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