There’s been a lot of discussion lately (and on CNBC this morning) about whether the Fed really will discontinue its purchases of mortgage-backed securities (MBS).No doubt the issue will come up today and tomorrow while Chairman Bernanke is on the hill.
But you should ignore this debate.
Remember that in December Obama announced a complete blank-check bailout of Fannie Mae and Freddie Mac, a move that enables them to snap up any quality of MBS in any quantities.
When the Fed stops buying mortgage-backed securities, Fannie and Freddie can easily pick up the slack. There’s no chance MBS will go unbought, the only question is who will be buying them. And it doesn’t matter, because the Fed and the GSEs are all now organs of the same government.
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