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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Why 12 is a Scary Number

$12 billion is 1.1% of $1.127 trillion.

These are important numbers. And the gap between them is even more critical.

According to testimony by U.S. Treasury Secretary Tim Geithner before Congress this week, $12 billion is the total amount of mortgage-backed securities (MBS) purchased under the "Public-Private Investment Program (PPIP)" to date.

A year ago, the PPIP was lauded as the solution to America's credit crunch. Banks needed to unload their huge holdings of questionable MBS. Under the PPIP, private buyers would purchase these securities from the banks. In return, they would receive cheap government loans matching their purchase amounts.

The results have been underwhelming to say the least. Private groups have stepped up for just $12 billion in PPIP purchases. A very small number in the grand scheme of things.

Compare this with the Federal Reserve. Over the past year, the Fed has bought $1.127 trillion in MBS. Two orders of magnitude larger.

Hmm. The fact that private industry, supposedly the brightest financial minds in the world, is looking at this market and giving it a big pass suggests they're seeing something that really scares them. Even cheap government cash can't entice them to buy. 
And yet, the citizens of America are loading up on these same securities. To the tune of $1 trillion.

Worries me a little.

By. Dave Forest of Notela Resources


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  • Anonymous on June 26 2010 said:
    "And yet, the citizens of America are loading up on these same securities. To the tune of $1 trillion."Don't forget that government is also on the hook for all Fannie and Freddie mortgages. Come to think of it I would replace your "loading up" with "on the hook" too.

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