Citi cutting back on mortgages

The Fed should start buying up mortgage securites
The Fed needs to become the buyer of last resort for mortgages. For a discount of up to say 25% of face, depending upon historical losses and current delinquencies and foreclosures, the Fed would start buying up mortgage securities. The discount % would effectively become a floor for such securities because the potential work out buyers would know it could always sell the security to the Fed at the stated discount.

The problem we face is credit quality, not liquidity. Lower interest rates alone won’t do it. Poor credit quality means banks won’t lend to each other. Poor credit quality and lack of seasoning and information means on many of these securities are to risky to otherwise buy.

But if the Fed set a floor price for mortgage securities, the market may come back to life because right now no one wants to buy mortgage securities because they think the price may go lower and because they lack enough information. At least a system like this would get the market moving again for prime and high quality mortgage securities.

The Fed would had the securites over to an organization similar to the resolution trust corp that worked out the savings and loan mess of the last 1980s.

The first injection of cash was a mistake from Dubai. Now they realized that Citi is not a bargain. It has real possibility that it may fold or split up into many. at worst case, bankruptcy. when bankruptcy take place, Dubai is looking at losing billions. Significant portions of Citi is owned by Saudi’s. They have realized that, if US economy goes into severe recession, which I think, worst recession in US history, may have potential where Saudi’s will put the most of the bills.

The notion of economic leadership shifting to China, Germany or any other country in the world should have him or her fired from his or her position.

The economic meltdown will melt everyone. Dubai too.