The #1 Question That Everyone Wants To Ask Bernanke en-us Wed, 31 Dec 1969 19:00:00 -0500 Sat, 12 Jul 2014 18:57:55 -0400 Joe Weisenthal black swan Thu, 13 Sep 2012 15:09:58 -0400 The question is: What does "improve substantially" mean? It means until all the TBTF banks are purged of all their impaired mortgage backed securities. For months on this blog, I posted that the Fed would use QE 3 to buy GSE MBS. I was the only one who predicted it. Here is why the Fed is doing this: The New York Fed's Primary Dealers choose which agencies (GSE mortgage backed securities) the Fed buys. The PDs will chose the most impaired mortgage backed securities held by the TBTF banks they work for. The Fed will pay full face value for them. The Wall Street banks will get their most distressed assets of of their balance sheets, and on to the US taxpayers' balance sheets. The Wall Street banks become the solvent banks and the USA becomes even more insolvent. Mortgage interest rates will drop, probably below 3%. This will set off a wave of refinances. Current mortgage debtors, who can now walk away from their mortgages without recourse from the banks, will face recourse on their refinanced mortgages. ROBO lawsuits, that are still being fought, will disappear with the refinances. Many underwater homeowners, who were thinking of walking away, will now stay in their refinanced homes with their lower payments. On January 1, 2013, the IRS will start taxing walkaways whose mortgage shortfalls have been forgiven by the banks. Starting in 2013, unless there is an extension of the tax forgiveness act, walkaways will receive 1099s for any mortgage tax relief they are given by the banks. What else could the Fed do. It could sell the the mortgages at big discounts to hedge funds and the same big banks that received full face value for the impaired mortgages they sold to the Fed in the first place. Freddie and Fannie could also start issuing 40-year mortgages, at less then 3%, and make mortgage payments far lower than rent payments. Ultimately, the national debt grows even larger, and the taxpayers will be screwed for generations to come. This could be enough to put Obama over the top for re-election.