Today the Federal Reserve announced it will continue it’s purchases of Fannie / Freddie mortgage-backed securities in an attempt to keep mortgage rates low. The Fed will add $750 Billion in GSE commitments on top of the $500 Billion it’s already put on the table.

GSE Securities Owned By Fed Reaches $1.25 Trillion

It looks to me that Chairman Bernanke thinks he single-handedly can support the mortgage market. Granted, he has now committed over a trillion dollars to do just that and doesn’t seem to have any problem adding to it in the future.

In case you don’t know…every dollar the Fed creates is a dollar borrowed by the government and by proxy, the American tax payer. So not only do WE have to worry about the safety of the GSE investment, we have to pay interest on the money used to buy said investment. And let’s not forget all this printing of money has inflation risk built into our collective futures. Inflation is a cost to all of us but especially hurts our seniors living on fixed incomes.

I am all for keeping rates, especially mortgage rates, low. But I’m not wild about borrowing money to do so. This interest on the trillion dollars used to attempt to keep mortgage rates down comes at a cost to everyone. So mortgage borrowers get a windfall and the rest of us get to pay the interest on the debt and get pinched by inflation as well.

Is that fair?

Are GSE Securities Safe?

The US Treasury Department took over the GSEs, Fannie Mae and Freddie Mac, so the US government now owns them. Both companies were so risky, the government had to take them over before they failed. I am not wild either about the government borrowing money to prop up it’s own failed “businesses”.

What do we know about about government run “businesses”? Do they ever get profitable again and get returned to the private sector? (I know this was the former Treasury Secretary, Hank Paulson’s hope.)

The answer is “No”.

Will Fannie / Freddie ever get returned to the private market and if they do, will investors ever feel confident buying stocks in the companies?

I seriously doubt it…on both accounts.

Good Luck!

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