Ben Bernanke is sitting before the House Financial Services Committee, sharing his "official" thoughts on the Fed's exit strategy. Most of his testimony and responses to politician questions have been heard over and over again by the markets. One thing that stood out to me though...
Ben brought up the fact that the Fed's Asset Purchases, especially the MBS Purchase Program, were going to provide a substantial return to American taxpayers.
Reuters reported the comment as so: FED WILL BE RETURNING "UNUSUALLY LARGE" AMOUNT OF MONEY TO TREASURY IN NEAR TERM DUE TO MORTGAGE INVESTMENTS
This hit a nerve for me because we discussed it over a year ago. Check out this post to see how the Fed's MBS Purchase Program has been a good thing for the U.S. Taxpayer. And I am tooting my own horn a bit :-D
Here is a summary of comments from Bernanke:
- GLAD TO SEE THAT BANK OF AMERICA IS OPENING UP TO PRINCIPAL REDUCTIONS AS TOOL TO PREVENT FORECLOSURES (hint hint more to come?)
- LOWER GSE LOAN LIMIT WILL RAISE INTEREST COSTS, REDUCE PRICES IN SOME REAL ESTATE MARKETS (high cost loan limits here to stay?)
- MAPPING OUT FUTURE FOR GSES WILL REMOVE SOME UNCERTAINTY FROM MORTGAGE MARKET (part of problem in mortgage market and MBS valuations is no official plan has been laid out)
- GOVT BACKSTOP THAT IS FULLY FUNDED FOR MORTGAGES IS "REASONABLE STRATEGY" (not sure what this means but it sounds good for us)
- EXTENDED PERIOD" DOES NOT IMPLY A FIXED PERIOD (when the FOMC removes this verbiage of the statement, the short end of the yield curve will sell off fast. Ben is trying to reduce the knee jerk reaction)
- SHRINKING BALANCE SHEET IS AKIN TO A MONETARY TIGHTENING (the Fed has been removing and will continue to remove accommodative policy via closing liquidity windows and asset purchase programs)
- AT THIS POINT FED OWNS SMALLEST SHARE OF U.S. DEBT FOR MANY YEARS, FED NOT MONETIZING THE FEDERAL DEBT (that's because US debt is at a record high)
- WHEN FED BEGINS TO SELL ASSETS, MUST DO IT IN A GRADUAL, PREDICTABLE WAY (Fed must openly communicate its intentions)
- FED NOT ADDING ANY CREDIT RISK BY HOLDING GSE MBS ( because underwriting standards much tighter in 2009 and 2010)
- WOULD NOT BE SELLING ASSETS IN A WEAK ECONOMY (will reduce the size of their balance sheet when the market permits)
- FED WOULD LIKE TO GET BACK TO ALL-TREASURY PORTFOLIO IN REASONABLE PERIOD (no timing on this though...just when the market is ready)
- ECONOMY WILL BE ABLE TO RECOVER IF FED MAKES BALANCE SHEET ADJUSTMENTS IN GRADUAL WAY (the market is sensitive, the exit process is complicated. must respect the market)
- US NEEDS TO BE BETTER BALANCE BETWEEN REVENUES, EXPENDITURES (massive budget deficit could increase benchmark borrowing costs. this would "Crowd Out" private borrowing costs)
- NEED MORE BALANCED ECONOMY, MORE SAVING BY CONSUMERS TO REDUCE LEVERAGE (we spent way too much. we must learn to save and invest. grow wealth!)
- SEEING SOME IMPROVEMENT IN BANKS' WILLINGNESS
TO MAKE LOANS (really?
only to qualified borrowers. depends on perspective of "qualified". see
comments
above re: portfolio credit risk)
Again, not much "newness"...but Ben did remind taxpayers that he is making us some money!
