Bernanke Reminds Taxpayers of "Unusually Large" Return Generated from Mortgage Investments

Ben Bernanke is sitting before the House Financial ServicesCommittee,sharing his “official” thoughts on the Fed's exit strategy. Most of histestimony and responses to politician questions have been heard over andrn overagain by the markets. One thing that stood out to me though…

Ben brought up the fact that the Fed's Asset Purchases, especiallythe MBSPurchase Program, were going to provide a substantial return to Americanrn taxpayers.

Reuters reported the comment as so: FED WILL BE RETURNING”UNUSUALLYLARGE” AMOUNT OF MONEY TO TREASURY IN NEAR TERM DUE TO MORTGAGEINVESTMENTS

This hit a nerve for me because we discussed this over a year ago. Checkrnout this post to see how the Fed's MBS Purchase Program has been agoodthing for the U.S. Taxpayer. And I am tooting my own horn a bit 😀

Here is a summary of comments from Bernanke:

1. GLAD TO SEE THAT BANK OF AMERICA IS OPENING UP TO PRINCIPALREDUCTIONS ASTOOL TO PREVENT FORECLOSURES (hint hint more to come?)
2. LOWERrn GSE LOAN LIMIT WILL RAISE INTEREST COSTS, REDUCE PRICES IN SOME REALESTATE MARKETS (high cost loan limits here to stay?)
3. MAPPINGrn OUT FUTURE FOR GSES WILL REMOVE SOME UNCERTAINTY FROM MORTGAGEMARKET (part of problem in mortgage market and MBS valuations isrn noofficial plan has been laid out)
4. GOVT BACKSTOP THAT ISFULLY FUNDED FOR MORTGAGES IS “REASONABLE STRATEGY”(not sure what this means but it sounds good for us)
5. EXTENDEDrn PERIOD” DOES NOT IMPLY A FIXED PERIOD (when the FOMCremoves this verbiage of the statement, the short end of the yield curvern willsell off fast. Ben is trying to reduce the knee jerk reaction)
6. SHRINKINGrn BALANCE SHEET IS AKIN TO A MONETARY TIGHTENING (the Fedhas been removing and will continue to remove accommodative policy viaclosingliquidity windows and asset purchase programs)
7. AT THISPOINT FED OWNS SMALLEST SHARE OF U.S. DEBT FOR MANY YEARS, FED NOTMONETIZING THE FEDERAL DEBT (that's because US debt is at arecordhigh)
8. WHEN FED BEGINS TO SELL ASSETS, MUST DO IT IN AGRADUAL, PREDICTABLE WAY(Fed must openly communicate its intentions)
9. FEDrn NOT ADDING ANY CREDIT RISK BY HOLDING GSE MBS ( becauseunderwriting standards much tighter in 2009 and 2010)
10. WOULDrn NOT BE SELLING ASSETS IN A WEAK ECONOMY (will reduce the sizeof their balance sheet when the market permits)
11. FEDWOULD LIKE TO GET BACK TO ALL-TREASURY PORTFOLIO IN REASONABLE PERIOD(no timing on this though…just when the market is ready)
12. ECONOMYrn WILL BE ABLE TO RECOVER IF FED MAKES BALANCE SHEET ADJUSTMENTS INGRADUAL WAY (the market is sensitive, the exit process iscomplicated.must respect the market)
13. US NEEDS TO BE BETTER BALANCEBETWEEN REVENUES, EXPENDITURES(massive budget deficit could increase benchmark borrowingcosts. thiswould “Crowd Out” private borrowing costs)
14. NEED MOREBALANCED ECONOMY, MORE SAVING BY CONSUMERS TO REDUCELEVERAGE  (we spent way too much. we must learn to save andinvest. growwealth!)
15. SEEING SOME IMPROVEMENT IN BANKS' WILLINGNESSTO MAKE LOANS (really?only to qualified borrowers. depends on perspective of “qualified”. seecommentsabove re: portfolio credit risk)
    

Again, not much “newness”…but Ben did remind taxpayers that he ismaking ussome money!

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