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"There's one simple reason this argument doesn't hold up: The Fed's housing lever doesn't work.

It started the whole mess by making money nearly free, but it can't end the mess by doing it again. Why? Prices are already too high and everyone knows that the people signing on the bottom line can't make the payments. Without the pleasant fiction -- now long gone -- that "Alt-A" and subprime loans could be broken into A-rated securities, the funding font for the bottom of the pyramid scheme is gone. The fed can't fix that. No one can.

Only way to get back to it is to convince all those ex MBS buyers to eat lead paint chips for breakfast, maybe every day. After having thrown a bone to a couple hundred thousand ARM-holders, they'll haul a few bankers in front of congress, chide them, and then watch as the asset prices shrink or stagnate (shrinking in real terms, but in ways that most Americans won't notice...)"

(TMFBent's comment to my Sep 18 post) 

 

 Well, here's the answer to that. Subprime loans are safe because they are guaranteed by the government. There's always Bernanke to buy them back from you should things go badly. The trick is to be a big bank and to buy a lot of the because if you're a small fry like NEW, you can actually get a cold shoulder as Bernanke thinks you're expendable...

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