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This might be a dumb series of questions but here it goes: Didn't we get into a huge mess because of mortgage-backed securities just 15 years ago? And you're

This might be a dumb series of questions but here it goes: Didn't we get into a huge mess because of mortgage-backed securities just 15 years ago? And you're telling me now instead of (i)banks owning them, the federal reserve owns them? Does anyone know what the general "rating" of those securities is? Isn't this dangerous? I know we trust our governments to handle things like nuclear weapons but this seems a bit more dangerous and opaque with far less oversight. Should we be concerned?

VirusNewbie 5y ago
Banks are the federal reserve.
- gruez 5y ago
  Only in the sense that banks hold shares in the federal reserve, but since the federal reserve is controlled by the federal government it's not really comparable to holding shares in JP Morgan Chase. It essentially functions as a government agency.
  - VirusNewbie 5y ago
    Do you think there is a separate bank that literally holds the money? Do you think the US government owns the assets owned by the federal reserve?
    - gruez 5y ago
      >Do you think there is a separate bank that literally holds the money? holds what money? all the money in the US? all the money on the fed's balance sheets? >Do you think the US government owns the assets owned by the federal reserve? What do you think ownership means? The federal government might not "own" the assets in the sense that they can raid the federal reserve's holdings, but they (or their appointees) can very well direct the federal reserve to sell/buy holdings at will. They can also direct the federal reserve to buy government debt, which is essentially giving the government money.
      - VirusNewbie 5y ago
        What I'm trying to say is that the Federal Reserve is not owned by the US government and instead owned by all of the chartered banks. So having 1B of mortgage backed securities go from being owned by JPMorgan to 'The Federal Reserve', just means it's more evenly distributed across all banks, not that 'the government' now owns the debt.
        gruez 5y ago
        > So having 1B of mortgage backed securities go from being owned by JPMorgan to 'The Federal Reserve', just means it's more evenly distributed across all banks, not that 'the government' now owns the debt. What's the practical difference between: 1. federal government owns mortgage backed securities 2. an agency controlled by the federal government owns mortgage backed securities Please explain in detail, without resorting to "the government does/doesn't own it".
        VirusNewbie 5y ago
        If the government owns it, the value of the mortgage backed security it owns would affect its balance sheet. If the banks own it, the banks balance sheets are affected and not the government. I'm unsure of the confusion though?
jfengel 5y ago
The idea was that the securities were, in general, reasonable assets that got caught in the equivalent of a "short squeeze". The government could handle holding through the crisis, while even large banks couldn't. Some have already been sold off at a profit. Such was the idea. We'll see how well it works out. They need to be off the books one way or another. That's going to contract the economy temporarily (which will hopefully counteract the recent inflation -- which is the reason now is a good time to do it). It's definitely concerning, because this is the economy as a whole. It's conventional economics, which has done a reasonably good job of understanding the economy for the past few decades, with some serious but not apocalyptic missteps. (And there's a lot more oversight than the nuclear weapons get.)

VirusNewbie 5y ago

Banks are the federal reserve.

gruez 5y ago
Only in the sense that banks hold shares in the federal reserve, but since the federal reserve is controlled by the federal government it's not really comparable to holding shares in JP Morgan Chase. It essentially functions as a government agency.
- VirusNewbie 5y ago
  Do you think there is a separate bank that literally holds the money? Do you think the US government owns the assets owned by the federal reserve?
  - gruez 5y ago
    >Do you think there is a separate bank that literally holds the money? holds what money? all the money in the US? all the money on the fed's balance sheets? >Do you think the US government owns the assets owned by the federal reserve? What do you think ownership means? The federal government might not "own" the assets in the sense that they can raid the federal reserve's holdings, but they (or their appointees) can very well direct the federal reserve to sell/buy holdings at will. They can also direct the federal reserve to buy government debt, which is essentially giving the government money.
    - VirusNewbie 5y ago
      What I'm trying to say is that the Federal Reserve is not owned by the US government and instead owned by all of the chartered banks. So having 1B of mortgage backed securities go from being owned by JPMorgan to 'The Federal Reserve', just means it's more evenly distributed across all banks, not that 'the government' now owns the debt.
      - gruez 5y ago
        > So having 1B of mortgage backed securities go from being owned by JPMorgan to 'The Federal Reserve', just means it's more evenly distributed across all banks, not that 'the government' now owns the debt. What's the practical difference between: 1. federal government owns mortgage backed securities 2. an agency controlled by the federal government owns mortgage backed securities Please explain in detail, without resorting to "the government does/doesn't own it".
        VirusNewbie 5y ago
        If the government owns it, the value of the mortgage backed security it owns would affect its balance sheet. If the banks own it, the banks balance sheets are affected and not the government. I'm unsure of the confusion though?

jfengel 5y ago

The idea was that the securities were, in general, reasonable assets that got caught in the equivalent of a "short squeeze". The government could handle holding through the crisis, while even large banks couldn't. Some have already been sold off at a profit. Such was the idea. We'll see how well it works out. They need to be off the books one way or another. That's going to contract the economy temporarily (which will hopefully counteract the recent inflation -- which is the reason now is a good time to do it). It's definitely concerning, because this is the economy as a whole. It's conventional economics, which has done a reasonably good job of understanding the economy for the past few decades, with some serious but not apocalyptic missteps. (And there's a lot more oversight than the nuclear weapons get.)