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Ben Bernanke owns your mortgage

By Justin Fox

Ben Bernanke's speech among the Grand Tetons this morning seems to have mollified markets for the day, although it was sadly disappointing for those of us who hoped he might come out with a new catchphrase.

The Fed chairman's basic message was the same thing he's been saying for more than a year: There are downside risks, but we have the tools to combat them. And we know that at some point we'll have vacuum up most of this money we've printed. But that point is still far (recedingly far) in the distance.

One passage of the speech that did get my attention was this, as Bernanke explained the Federal Open Market Committee's recent decision to reinvest the proceeds of maturing mortgage securities (they're maturing faster than expected because so many people have been refinancing their mortgages to take advantage of ultra-low rates):

We decided to reinvest in Treasury securities rather than agency securities because the Federal Reserve already owns a very large share of available agency securities, suggesting that reinvestment in Treasury securities might be more effective in reducing longer-term interest rates and improving financial conditions with less chance of adverse effects on market functioning.

In other words, we already own everybody's mortgages, so no point in buying more. Our nation's mortgage-finance industry is for the time being a wholly owned subsidiary of the Federal Reserve System. Now that's what I call really existing socialism.

P.S. It's a really beautiful day out, so I imagine this will be my last post here. Thanks to Ezra for having me, and to all of you for putting up with my extremely rusty policy-blogging skills. And definitely, make some melon soup. And FYI: I'm told that the melon I used was most likely an Orange-Flesh Honeydew.

Justin Fox is editorial director of the Harvard Business Review Group and author of The Myth of the Rational Market.

By Justin Fox  |  August 27, 2010; 1:54 PM ET
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thanks for dropping by, it was great to see you again! Orange-flesh honeydew could also be John Boehner's nickname

Posted by: bdballard | August 27, 2010 2:46 PM | Report abuse

Bernanke isn’t making the markets bounce. We closed below 10k on dow and that is a psychological level. There is a support there, but not solid ground. Kind of like falling out of a window and landing on the main deck of the Titanic. If we get two consecutive closes below 10k on dow, abandon ship. Here is a chart of S&P500 and Consumer Confidence over the past 5yrs:

Two things are obvious – 1. nothing travels in a straight line 2. Look out below.

Economics Jai ho!

Posted by: HiddenLevers | August 27, 2010 2:57 PM | Report abuse

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