The Federal Reserve said today that it will deploy an additional $1.2 trillion to try to lower interest rates and stimulate the economy, an aggressive move aimed at containing the recession.
The central bank will increase its purchases of mortgage-backed securities by $750 billion, on top of a previously announced $500 billion. It also will double its purchases of debt in Fannie Mae and Freddie Mac to $200 billion. Those steps are intended to lower mortgage rates. The announcement of the previous purchases pushed mortgage rates down a full percentage point.
The Fed also said it will buy $300 billion in long-term Treasury bonds, a step it had previously considered but had been reluctant to act on.
I have no problem with the bond purchases, and I don't mind more money for Fannie Mae and Freddie Max now that they are publicly owned. However, I do have a problem with a $750 billion investment in toxic assets that more than doubles the size of TARP, and which took place without congressional approval.
Keep in mind that the Obama administration has included $250 billion in projected losses on the purchase of $750 billion in toxic assets in the budget:
The $250 billion in funds, should the administration seek it out, would support $750 billion in asset purchases as part of a public-private partnership fund the administration has yet to roll out, according to a budget blueprint document.
I always thought it was strange that they were only budgeting in the losses without asking Congress for more money. Kind of makes me wonder if they coordinated this move with the Federal Reserve, so that they could sink another $750 billion into toxic assets without actually having to ask Congress for they money. The numbers match up strikingly well.
Or, the situation could be even worse, and the $750 billion from the Fed is on top of the $750 billion in the public-private partnership plan. So, that is now $1.5 trillion in bad assets, or more than 10% of our GDP. Awesome.
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