I was just thinking about this and then it dawned on me that with the increase in foreclosures and potential foreclosures, it makes the mortgage backed securities that much less valuable and more worthless. I suppose we don’t know how much value on these mortgage backed securities has declined but I would imagine that it’s a sure bet that the Fed won’t even get close to the same amount in which they paid for them. Would this explain one of the reasons why housing is still being propped up with rebates and why banks are still holding off from putting people into foreclosure?
The Fed will get whatever amount it wants, since it promises to repurchase them later for an even greater amount.
Won’t repurchasing them at a greater amount lead to even greater excess reserves?