Wednesday, November 26, 2008

Treasury punts to Fed

Turn the government printing press on.

The Fed is now going to buy up to $600 billion of mortgage bonds issued by Fannie Mae, Freddie Mac, Ginnie Mae and the Federal Home Loan Banks, and lend up to $200 billion to holders of AAA-rated securities backed by student loans, auto loans, credit card loans and small business loans, the FT says.

Note this in the FT story:

“Instead of having the Treasury borrow the cash to fund these programmes through the Tarp, we’re just going to crank up the magical printing presses and expand the Fed’s balance sheet,” said Stephen Stanley, chief economist at RBS Greenwich Capital. “For those not connecting the dots, the Treasury has essentially just outsourced the purchase of troubled assets to the Fed, with lots of leverage.”