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Yes, the goal was to entice banks to buy more, new, post-crisis MBS'es, in order to keep the mortgage markets functioning in 2009-10-11-12.
If private-issued MBS were so much more risky than Agency-issued (GSE) MBS, the Federal Reserve would have bought the supposedly riskier private-issued MBS and left the supposedly safer GSE-issued MBS for the banks. That's NOT what happened.
If private-issued MBS were so much more risky than Agency-issued (GSE) MBS, the Federal Reserve would have bought the supposedly riskier private-issued MBS and left the supposedly safer GSE-issued MBS for the banks.
No, because the Fed did not want to encourage further purchases of privately-issued MBS assets. They just wanted to ensure there was a market for GSE-backed MBS'es.
What you are describing -- ridding the financial sector of toxic private-issue MBS'es -- was the role of programs like TARP.
No, because the Fed did not want to encourage further purchases of privately-issued MBS assets.
And the Fed buying $2 trillion of GSE-issued MBS and NOT privately-issued MBS encourages that how? That leaves more privately-issed MBS assets on the market.
And the Fed buying $2 trillion of GSE-issued MBS and NOT privately-issued MBS encourages that how?
By reducing supply of older GSE-backed MBS'es, you encourage banks to buy new ones.
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That leaves more privately-issed MBS assets on the market.
No it doesn't. In 09-10-11-12 there were very few privately-issued MBS assets coming to market in the first place, and many of the existing ones had either been taken care of with programs like TARP, passed off to high-risk investors like hedge funds, or were whittled down to being relatively small items on the balance sheets of megabanks.
Yes, that means banks and financial institutions have to more heavily rely on privately-issued MBS as investment assets.
They weren't relying on them at all. They were reducing their exposure to mortgage assets, and they weren't touching privately-issued MBS assets with a 10 foot pole.
By buying old GSE-backed MBS'es, the Fed reduced market supply and thus created buyers for newly issued GSE-backed MBS'es. Or in other words, the Fed helped adjust the aggregate size of the MBS markets to more-closely match the amount of new MBS'es that banks were willing to buy.
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