Bubbles: The Fed And Bankrupt “GSE”s

From The Wall Street Examiner comes this:

Another anomaly of note is the fact that 10 year Fannie paper is now yielding less than 10 year Treasuries. This is another sign of mass psychosis. Unfortunately, the source of the infection has been Bernanke’s insane policy of piling up risky MBS paper on the Fed’s balance sheet. Wave after weekly wave of Fed buying has created one of the most ridiculous market distortions in history. Unfortunately, the problem it was designed to solve, the housing market collapse, isn’t responding.

This is more than ridiculous.  It is in fact outrageous.

The GSEs are in fact bankrupt.  This is why they were taken into "conservatorship" and have required roughly $100 billion in direct taxpayer subsidy to remain "breathing", much like a brain-stem-only human requires thousands of dollars a day in direct input in the form of a ventilator and mechanical feeding (not to mention diaper changes and similar) to remain "alive."

This distortion allegedly is supposed to "help" the housing market. 

It has done no such thing.

It has led Barney Frank to pronounce that intentionally making bad loans is a "policy", and the market laughs, knowing that The Fed is directly monetizing the very same debt – after saying it wouldn’t.

If you hand out hundreds of billions of dollars for what are worthless securities (or at least those against which any rational person would demand a HUGE haircut) you are in fact doing nothing other than debasing the currency and printing money.

The worst part of The Fed’s action isn’t that they’re printing money.  It is that the outrageous actions of these "lenders" are being rewarded – that is, do a bad thing, make an unsupportable loan, distort the market on purpose and The Fed (and government) comes along and rewards you.

This is in fact no different than what government did during the entire housing bubble.  Make bad loans, loot the economy, it’s ok – you can make millions in bonuses, even if you ripped off both home buyers AND investors. 

Now we’re doing the same thing "writ large" and right under the public’s nose, and yet we "justify" it by claiming it is being done to "stabilize" the housing market.

If this "printed money" went to consumers instead and Fannie and Freddie were allowed to crumble into dust, at least the average American would get some of the benefit, even if he or she subsequently got crushed by the currency devaluation.

But no!  Instead the oligarchs make off with their outsize salaries, those who put together questionable (if not outright fraudulent) accounting continue to get paid, the government continues to run it’s revolving door with Wall Street and the "GSE"s, and we the people continue to get screwed.

This is despite the fact that Section 14 of The Federal Reserve Act appears to prohibit the purchase of these very same securities, and for good cause – The Fed is not supposed to be buying anything that is or could be potentially impaired, as any losses it may take inure to us (not it), and worse, by "flattening" the risk curve it inherently distorts the market and prevents market pricing of risk.

Lee Adler calls this "psychosis."

It’s psychotic all right, but not in the way he posits. 

But what he won’t say I will:

This has been and still is nothing other than a psychotic heist.