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Fed Reserve buys stock in emergency?

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LegendKiller

Lifer
Mar 5, 2001
18,256
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Originally posted by: Capitalizt
Heh, does it ever occur to you that Fed paid fair market price for those MBS? why does it have to be either above or below market rate?
If they were at a "fair market rate", the fed would not have bought them because they would have ALREADY BEEN SOLD to a willing buyer at that price.

"Fair market value" = the rate at which buyers and sellers freely agree to exchange property.

There were NO buyers at the price the fed was paying for these securities...so by definition, they paid above fair market value and diluted the money supply.
Why would the banks want to sell the assets on a perm-basis? The repo market is massive because people need short-term funds for different purposes, sometimes it's not even completely needed. That's why it exists and it happens every day.

There were no buyers because the market is just crazy at this point. Everybody is so insanely worried about taking a loss that they aren't doing anything. The banks are flush with cash but to get anybody to actually *do* something is difficult.

That's evidenced by even the most robust ABCP conduits not being able to fund longer than overnight. That's a key thing you miss and Smack Down refuses to acknowledge. This isn't about taking money in our out of the system, it has to do with unfreezing people and keeping the Fed Funds rate at the target number.
 

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