Replies to post #784259 on Fannie Mae-No Politics (FNMA)

[LuLeVan]

What law allowed treasury to buy $250 billion of MBS in the summer of 2008?

There was no law. There was an emergency: China and Russia had bought huge amounts of MBS from Fannie and Freddie because they yielded 0.5% more interest than US Treasuries. The MBS were considered equally safe because they were implicitly guaranteed by the US government. The problem with the word "implicit" is that there was/is no direct guarantee. The Chinese were afraid that the MBS could become worthless in the wake of the US housing crisis, that they had bought "subprime junk". This was not true, but the concern was there.

To allay these concerns, the government offered China the opportunity to swap Fannie and Freddie MBS for US Treasuries - which actually happened. The dollar was very weak in mid-2008 ($1.60 to the euro), and the government was worried that if there was (Chinese) panic selling of MBS, the dollar would weaken even more. It was an emergency, the legal justification was cobbled together later.

[NeoSunTzu]

Treasury claims that HERA provided them the authority to do so and further claims that by March 2012 they had been fully repaid and wound this program down and a $25 B profit to the tax payer. See this link (https://home.treasury.gov/news/press-releases/tg1453). The Federal Reserve purchased many times that amount and are still trying to wind down their purchases.

WASHINGTON – Today, the U.S. Department of the Treasury announced the completion of the orderly wind down of its agency-guaranteed mortgage-backed securities (MBS) portfolio, which it acquired as part of its response to the financial crisis. Overall, Treasury’s MBS portfolio generated a positive return of $25 billion for taxpayers.

Treasury invested $225 billion in MBS during 2008 and 2009 through authority provided to it by Congress under the Housing and Economic Recovery Act of 2008. These MBS purchases helped preserve access to mortgage credit during a period of unprecedented market stress. Overall, taxpayers received total cash returns of $250 billion from this MBS portfolio through sales, principal, and interest – $25 billion more than their initial investment.

[Guido2]

He isn't Hamish Hume. He is the bravest, the noblest, the fighter of evil, defender of fair maidens and champion of the oppressed, the one and only Don Quixote de la Mancha.