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> Behind the scenes some traditional risky assets such as index funds are already on par with mortgage backed securities in terms of risk and will be accepted a
by isoskeles 7y ago
> Behind the scenes some traditional risky assets such as index funds are already on par with mortgage backed securities in terms of risk and will be accepted as collateral by the central banks.
Can you explain this in a bit more detail? What are some index funds are on par with mortgage backed securities and in what way is the level of risk similar?
- vladimirralev 7y agoThe risk is similar because the too-big-to-fail phenomenon applies to both. Back in 2009 the central banks stepped in and bought any MBS for sale at pre-crisis market price, still on their balance sheets to this day. They couldn't let MBS fail because it was used as collateral in all kinds of loans. Now we see the same with stocks, so we know what to expect, thus the risk is similar. The central bank of Japan is already openly buying ETFs (stocks) along with many sovereign funds around the world, giving ETFs further credibility as collateral between central banks and governments. ECB and the Fed are following their steps, even though they haven't done public purchases yet. All central banks are singling that buying stocks is on the table, there is no question it will be done in case of emergency.
- thoughtstheseus 7y agoI agree that quasi-equity purchases will be on the table. ETFs have different voting rights than direct stock. Governments won’t let these pensions fail in mass. Also look at dual interest rate options like teltros in the ECB.