E Did The Fed Want The Houses Back For Wall Street?

The Fed wanted the houses back for Wall Street. It is hard to prove, but could be the truth. We see that the banks made money on toxic loans in the housing bubble, and then on loans to high powered investors on Wall Street, to buy houses that became available when the toxic loans failed. The conclusion for me is as follows:

1. Wall Street first made money on granting dubious mortgages, which had default risk, but the risk was mispriced.

2. This mispriced risk caused investors who were deceived, to grant more money for lending, and house prices soared due to easy money demand.

3. Then with the help of the Fed, Wall Street crashed the prices of subprime properties in mid 2007, knowing they could not be sustained once securitization was destroyed. Securitization was destroyed when the investors realized that they had been fooled.

4. When there were no more buyers for commercial paper from shadow banks, the off balance sheet SIVS had to transfer the bad loans onto the balance sheets of the TBTF banks. Credit was impaired to the rest of the real estate market, including to HELOCS in 2008.

5. The Fed could have immediately started to use base money buy the bad loans that the SIVs placed upon the TBTF banks. But the Fed did not do so. It waited until the house prices crashed! That is premeditated destruction, a liquidation, in my view. Yes, the law was not yet put into place regarding the use of excess reserves, but it could have been. HR 1424 providing for excess reserves, was introduced into the House of Representatives on 3/9/2007, and the subprime crash took place in the summer following. These Fed and government people could have known what was going to happen and what was needed before the initial subprime crash.

6. This price destruction allowed the Street itself to come in and buy the houses low and drive the prices up, in most cases, past where they were at the height of the bubble.

If all this was premeditated from the beginning, that could turn out to be the greatest financial conspiracy in the history of the world! Keep reading.

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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