Your Lender is the Federal Reserve System
Posted on December 19, 2013 by Neil Garfield It is difficult to
state with certainty exactly how many ugly mortgage bonds have been
purchased by the Federal Reserve. But if you put pencil to paper we can
estimate the number. The published figures indicate there was a purchase
of several hundred billion in these defective bonds when the financial
collapse occurred. To be on the safe side we will use a figure of $300
billion. Since then the published articles indicate that the Fed has
been purchasing bonds monthly. The amount of monthly purchases of the
mortgage bonds appears to vary between
$55 billion and $35 Billion. So if we use an average of $45 billion
per month of mortgage bonds that have been purchased by the Federal
Reserve. This has been going on for about 55 months. So the total
monthly purchase of mortgage bonds is around $2,225 Billion or
$2.225 Trillion. Hence the total purchases by the Fed could be reasonably estimated at $2.525 Trillion.
This means that the Federal Reserve owns a substantial bulk of the
bonds issued during the mortgage meltdown. Questions abound. The Federal
Reserve knows the bonds were defective in a number of respects. But
they are purchasing those bonds for the express purpose of propping up
the financial system and presumably getting those bonds out of
circulation. The question is why did they purchase these bonds from the
banks? The banks were merely the intermediaries that created the REMIC
trusts that issued the bonds. So are the trust beneficiaries receiving
this money? Nothing in the public domain indicates that the investors
were paid by the banks that received this money. Since it was a purchase
the bonds still exist which means that the largest investor in many
trusts is the Federal Reserve. Is the Fed getting Servicer advances?
But the largest question on my mind is why the Federal Reserve as
an agency has not addressed the fundamental economic problem of economic
inequality that was caused by a deeply flawed system of defrauding
investors and borrowers into entering into loan deals that were (a)
different from each other and (b) could never work because of the values
used for the loan and property?
If you take the number of Foreclosures that have been rubber
stamped through the system plus the bond purchases by the Federal
Reserve and add them together, the amount of "help" received by the
banks is around $3.5 Trillion. The amount of help given to homeowners is
a tiny fraction of that amount. If the Federal Reserve wants economic
growth, it should use its potential influence as the largest investor in
the bonds to mandate settlements that make economic sense to both
investors and to borrowers. This correction stops the financial aid to
banks who are keeping the money. But it stimulates investment and
incidence in the financial system and the capability of the middle class
to spend and stimulate the economy.
The main obstacle to fair settlements is the fact that we are still
going through intermediary banks who we know have committed widespread
fraud and whose balance sheets and income statements are being
artificially inflated by showing values and profits that should not have
been allowed. No new law is required. When you defraud investors the
normal result upon discovery is restitution to those investors. If the
investors (including the federal Reserve) are satisfied and seek no
further payment on the debt due to these lenders, then a pro rata
reduction of the debt supposedly owed by homeowners is merely the
corresponding bookkeeping entry. The federal Reserve has an obligation
to use its influence to force these settlements avoiding further
displacement and further erosion of middle class wealth
