Is This Good for Gold: Good readFebruary 10, 2011
More Welfare for Wall Street
QE 2 Sets Off Inflation Alarms
By MIKE WHITNEY
And big finance is not just scarfing up junk bondseither. They're also adding to their trove of garbage adjustable-ratemortgages (ARMs), the notorious MBS that sent the housing market intofreefall. Here's a clip from Businessweek:
"Home loans that inflated the U.S. housingbubble...are fueling the fastest gains in the mortgage-bondmarket....Prices for senior bonds tied to option adjustable-ratemortgages, called "toxic" by a government commission, typically jumped 6cents to 64 cents on the dollar in the past month, according toBarclays Capital.
Rising values show Federal Reserve efforts tostimulate the economy by purchasing an additional $600 billion ofTreasuries and holding interest rates near zero percent are drivinginvestors into ever-riskier securities.....
The market is pricing in defaults on option ARMs ofabout 75 percent, according to hedge fund Metacapital Management LP inNew York. As the worst housing slump since the Great Depressiondeepened, assumptions reached as high as 90 percent, said Whalen, who'sbased in Los Angeles."("'Toxic' Mortgages Rally as Resets Accelerate:Credit Markets", Businessweek)
Got that? Investors are loading up on these garbage bonds even thoughthey expect 75% of them will go belly-up. Hey, it's a Bernanke goldrush! Is it any wonder why QE2 does not inspire confidence? It's justmore bubblenomics.