alb
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It says on TV that Federal Reserve Bank injected billions of dollars to calm credit market worries. The last time the injection as big as this one was on September 11 2001.
My question: Did billions of dollars that injected in September 11 disappear or evaporate into thin air or fed took them out after a certain of days.
My real question: Let me explain first: Mortgage companies lost money due to homebuyers or homeowners' inability to pay mortgages back. But the mortgage companies gave cash to homebuilders who sell house to homebuyers. Then homebuyers were supposed to pay them back. The money (cash) is in homebuilders' pocket. Mortgage companies may lose them, but homebuilders now has them. As an overall, the total sum of money in the economy remains the same.
Homebuilders can then deposit them in banks and banks then again lend to mortgages. It is not clear why it is a mess. Please explain.
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Fri Aug 10, 2007 11:50 pm |
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alb
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| why mess? |
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The total money of the economy is just an example though poor one. Actually, the economy is growing fast/slow due to growing population. That is why we have census every 10 years to keep track of the population. Then the Fed have the information before injecting a certain amount of new cash to commerical banks.
Your mentioning of Fed securities buying and selling is helpful.
I have been wondering about the evaporation of money until you mentioned this (control of money supply). (Fed does not think it is as important as before). Anyway, that is what I believe really happened. The Fed Reserve has been SELLING securities not only to banks, but to us for at least two years (my guess). We BUY US Treasuries, money market funds from Fed. Banks do the same. The Reserve is anxious to SELL them to banks, agencies. dealers and us just to fend off inflation. It is only thing on their mind. This way they can do as they please with our cash; usually they are siphoning lots of money out of the economy causing funds to exceed above 5.25% the minimum rate. Banks dont have much fund to lend (to each other) before lending to us at higher rate at least one percent causing exceeding the 5.25% limit. causing fed to inject billions of them yesterday. So banks can do lending again for example to mortgage lenders.
So by now, I dont think it is the bad loans that causes the mess. Banks can always sell bad loans again like houses. New mortgages. Set new rates (higher or lower).
We may never get satisfactory answers, but you mentioned about money supply;its cause of money disappearance.
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Sat Aug 11, 2007 12:17 pm |
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alb
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quote:
Originally posted by coaster
The Fed doesn't sell to the public. The government securities it buys and sells are restricted securities. It's the U.S. Treasury that deals in U.S. bonds, bills, and notes sold to the public.
Thanks for the correction.
quote:
The Fed's manipulation of the Fed Funds rate is actually the reverse of what you described. It's credit demands between the banks that push the rate up or down,
I thought I make clear that when Credits (Funds) when in large supply versus demand will drive funds rate down. If demand exceeds supply of funds, the rate goes up. It is between banks.
quote:
and it's the Fed's actions buying and selling against the market demands that attempt to keep at the target rate.
If funds rate is above the target rate, Fed's actions will inject supply more credits (funds) to keep the target rate and vice versa. In other words, they inject new cash or take them out. Yet, the target rate is still reserved within the commerical banking system for borrowing/lending with one another.
Those with plenty funds (credits) can lend money to business world. Of course at higher rate to make profit.
Do I still miss the point? It is still very complex, anyway, I truly appreciate the link below; good reading. Thank You, Tim.
quote:
Here's an article: http://www.econlib.org/library/Enc/MoneySupply.html
[edited]
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Sat Aug 11, 2007 2:11 pm |
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alb
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Your bringing up on the money velocity may be the big factor in the disappearance of money. Buying securities by Fed is another possibility, but not as big as this. The low velocity may be the main cause. You make it sound simple. You have made a point. There are good readings in general economic textbooks on this subject: equation of exchange:s VM =PQ.
V=Velocity;
M=Money Supply;
P= the average of price
Q= the quantity of goods and services.
Thank You.
Alan
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Sat Aug 11, 2007 3:51 pm |
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efflandt
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Location: Elgin, IL USA
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Apparently the feds are doing a 3 day "repo". They temporarily give dealers money for mortgage backed, treasury, or agency securites, and those dealers deposit the money into commercial banks so it is available to meet reservers or lend overnight. They are trying to lower the overnight borrowing rate from 6% to closer to the gov't 5.25% rate. On Friday only treasury securities were submitted and accepted.
I hope we do not end up footing the bill for greedy mortgage brokers and lenders. Although, in a way we already have with shrinking stocks.
It is a matter of accountability. Maybe we would not be in this mess if lenders were more careful about writing loans they had to hold onto. But mortgage brokers pawn them off on a lender, and the lenders repackage and pawn them off on someone else (hedge funds). Overinflated property values shrink, and people stop paying on property they have no vested interest in (or owe more than current property value).
The root of the problem is that lenders made bad loans with not enough collateral (none in many cases) to people who are not paying it back. So money that the banks expected to come in is not, and they have to raise cash to maintain their reserves.
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Sun Aug 12, 2007 8:35 pm |
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alb
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| What a mess |
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New topic: Subprime Lender :Aegis Mortgage Co Seeks protection from creditors
It is quoted from NY Times article Aug 14th due to investors' unwillingness to finance home loans for borrowers with poor repayment histories.
The company said it owed more than $100 million to creditors in Morgan Stanley and the Countrywide Corp. It confuses me.
Investors are people who invest $$$ in bonds (buy bonds) from the lender. Conversely, the lender get cash from them (investors) for home buyers. Conversely lender sell bonds to them.
In other words, the article says investors>mortgage lenders> creditors.
How is this possible? Hope somebody explains this how creditors and investors are involved; What are investors? What are creditors? They are most likely not same people.
I want to make correction on the original posting: home builders who can yet deposit bad loans into banks to keep in bank circulation to prevent the mess, but now i see that is not possible because the banks still lose interest/mortgages from the bad loans. The banks need them like corporation revenues.
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Tue Aug 14, 2007 5:21 pm |
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alb
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| why mess |
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Your reply implies that mortgage lenders need both investors' and creditors' money.Why both of them? Perhaps the only answer is that the lenders are greedy;want $$$ from them, but this is not the answer. It may have something to do with securities repackaging.
Perhaps, the lenders wants loan from creditors to pay back investors or make their own investments. Not good answer; I may not be greedy enough.
Perhaps because creditors like banks cannot buy bonds like investors do. It is the bank policy so instead they make loans to lenders.
Alan
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Tue Aug 14, 2007 11:34 pm |
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alb
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| what mess |
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I want to start with you about mortgage banks or those who sell slices of loans (tranches) to investors.
The investors then own those loans from the mortgage banks/lenders in the secondary market. When investors hear bad news from their mortgage banks or mortgage lenders, they scramble to sell their loans to other investors in the secondary market as their bonds lose value.
My question: is this possible that the loans that investors hold go default (worthless) or most of the loan value is lost since mortgage houses or whatever they are out of business and they may be forced to sell their assets to the investors. the investors may get some back. If that is true, I may see the magnitude of the crisis.
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Wed Aug 15, 2007 11:04 pm |
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alb
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Quoted from ny times today "Countrywide and most other mortgage lenders rely heavily on borrowing from banks, brokerage firms and bond investors to make loans that they quickly turn around and and sell to investors trhough mortgage securities."
My question: Why do banks get involved? The lenders could have sell loans (new mortgage bonds) directly to investors and pay them high interest and then turn arounnd and lend to borrowers like homebuyers. Then homebuyers make mortgage payments to the lender.
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Thu Aug 16, 2007 3:42 pm |
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alb
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You explain very well, but investors are in business, too. It now becomes apparent that banks are in better position than investors in lending $$$. Banks can put up collateral like houses. Collateral is a very powerful word. That is why they do business with banks. Investors( insurance companies, pension funds) may do business with banks indirectly. When investors buy loans from lenders, they may check first to see if lenders put up collateral with banks.
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Thu Aug 16, 2007 5:54 pm |
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alb
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At first it was  After exchange of postings, it became clear  that
BANKS are hard to beat 
It becomes obvious that the investors must have bank accounts to begin with. Then banks have control over their accounts in lending. Investors' hands are tied. In other words, they (investors) cannot lend. They can by making out checks, but awkward.
Alan
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Thu Aug 16, 2007 9:10 pm |
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