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Treasury's spent $124 billion on . . .
The US Treasury building in Washington, D.C.
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BOB MOON: Take a look at line 71 on your 1040. Or on the EZ 1040, it's line 11. That's where you find out your tax payout for the past year. Too bad there's no line that tells you where it's all going, especially those trillions in bailouts. So many different programs have been cooked up, keeping track of that money is next to impossible.
You may have heard, for example, that the Fed has been buying up mortgage-backed securities,
and that's driven mortgage rates to historic lows. But Marketplace's Steve Henn has learned the U.S. Treasury's been doing this too in a big way for the past eight months. And nobody seems to have noticed.
STEVE HENN: Since October, the U.S. Treasury has spent $124 billion buying mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.
Tom LaMalfa is a mortgage industry economist. It's his job to know about stuff like this, but until we called and asked him about the program LaMalfa had no idea it existed.
TOM LAMALFA: We've all been tracking on a weekly basis Fed purchases. But the initial $124 billion that came out of the Treasury's pocket just fell into the black hole.
Since the beginning of this year Federal Reserve's been buying mortgage-backed securities too. Together the Fed and the Treasury have spent nearly $400 billion propping up this market. That's driven down interest rates, helping home owners. However, David Ries, a law professor at Brooklyn College, says if lots of homeowners default, the government could lose money. But . . .
DAVID RIES: They are already on the hook for all the liabilities of Fannie and Freddie to begin with. I can't see what the additional downside is.
In fact, the Treasury expects to earn billions of dollars a year off this investment. Still, Ries is amazed a program this size largely escaped public notice. In eight months, members of Congress haven't held a single hearing about it or asked a single question. And remember, this costs roughly what it costs to fund the war in Iraq for a year.
Ries: You know, if you had said this to me nine months ago, I would have said it's impossible.
Paul Keil, a journalist at the nonprofit group ProPublica, discovered it, digging through the Treasury Department's monthly balance sheet.
PAUL Keil: It's a little line item in this report that Treasury issues every month. Just buried there is, "Oh, we spent $124 billion buying all these securities from Fannie Mae and Freddie Mac."
Treasury officials told Marketplace it's not like they were hiding this. Officials announced this program when it began in September. But perhaps it's a sign of the times that when it comes to the bailout, it's possible for the public to lose track of more than a $100 billion.
In Washington, I'm Steve Henn for Marketplace
This is shocking, especially the comments from Mr. Lamalfa. I'm a mortgage trader, and we've all been talking about this for some time now. It isn't a front page story any more, but when it first started happening, it was discussed frequently, and every month, when the Treasury released their balance sheet information, we all went looking for it first thing. Maybe it was missed by some media outlets because it was announced in conjunction with Paulson firing his bazooka (taking over Fannie & Freddie). Here is an article about it:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=acFYa0TJPTKc
True, it has kinda fallen into the shadows, but everyone knows that it's out there, and it seems that the Fed is an even bigger buyer and has thus stolen the spotlight. Also, the Treasury money managers have not been as transparent as the Fed money managers, so it's hard to distinguish those flows sometimes.
But at the end of the day, it's no secret that the main (only?) buyers of these low interest rate mortgages that everyone who is refinancing is feasting on is the government, either the Fed, the Treasury, or even Fannie and Freddie (who are growing their portfolio via a Treasury mandate and are also able to issue much cheaper debt because they are now Treasury property & the Fed is buying up the corporate debt that they issue, driving down yields and thus their borrowing costs).
Make no mistake about it - the govt. is well on its way to owning about 1/4 of the mortgage market, and they already guarantee most of the market as well. So, a lot of the mortgages in this country are coming from a bank (who has received govt. assistance via TARP and/or FDIC-backed debt issuance (TLGP)) who originates or purchases a mortgage (and earns fees), then securitizes that mortgage with Fannie, Freddie, or Ginnie (paying a fee to the Agency who guarantees it), and the securities go to Wall St. dealers (most of whom fit into that 1st category of having govt. assistance) and eventually ends up with the Federal govt. (Fed or Treasury). So, basically, the federal govt. is loaning very, very cheap money to homeowners, but it is doing so indirectly, allowing 4 or so others to reap some revenues from it, and most, if not all, of those transactions are taking place with govt. owned or govt. assisted companies. And the borrower ends up with a higher interest rate than if all these parties were not taking these haircuts, but this is basically free money to the banks, who need to book some profits, and this is one of the many ways the govt. is indirectly helping the banks in ways that most people don't see or understand, meaning they are receiving much more assistance than meets the eye.
These are strange times, indeed.
