The Fed could make a bundle on mortgage-backed securities

When the housing market began recently unraveling at warp speed and quickly lugged the overextended mortgage industry along with it things looked quite bleak for the U.S. economy. Housing, after all, is one of its major components and should it be hit with a serious medical condition, taking a simple pain killer wouldn't help much. Then if ever, when the fury of the real estate sector's downturn became better understood, drastic action was called for.

The Federal Reserve bravely stepped forward intent on showing how it's done. Right on the heels of the private investor vanishing from the secondary mortgage market the Fed knew that to avoid an utter disaster with global consequences it had to quickly fill the vacuum. It began buying MBS, or mortgage-backed securities, insuring that home loan interest rates wouldn't shoot through the roof. That was essential to keep the housing market on its wobbly feet, giving it something concrete to rely on. There was some early howling against this vast government interference but it soon abated as stark reality set in. Without the Fed's decisive action Stone Age would have been right around the corner.

Please click on the above link to read the entire blog.