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To: jacquej

Me thinks that abbreviations are fine after at least one time showing what they stand for. Betcha many are asking, What’s POMOs & MBS.


10 posted on 09/28/2010 11:30:29 AM PDT by Digger (If RINO is your selection, then failure is your election)
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To: Digger

The comments after Denninger’s ticker article will help you understand, and perhaps it would be best to ask there.

I am no expert on these things, and would hate to give you bad info.


12 posted on 09/28/2010 11:47:33 AM PDT by jacquej
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To: Digger

POMO - Permanent Open Market Operations.

This is the program that provides liquidity to the banking system to prevent another freezeout of money market funds. The Treasury sells treasury bills to banks when things are good, and when it looks tight, they buy them back, providing cash which the banks can lend out to people who need to make payroll, etc.

Some people speculate that the treasury is buying back too much of their t-bills, and the banks are using the money to invest in stocks. Since there is speculation that the banks are sitting on trillions of dollars in assets, you’d have to think some of that would be in equities, although I bet most of it is in real estate they can’t really sell, so they don’t REALLY have trillions to lend out.

MBS - Mortgage Backed Security. The thing that allows a mortgage company to sell the cash flow from the mortgages they hold without having to transfer the underlying mortgages. It “spreads the risk”, but also hides the risk, and when the mortgages were crappy subprimes, the securities often got miscategorized as highly-rated instruments simply because of the expectation that the government would step in and back the quasi-public mortgage lenders.


25 posted on 09/28/2010 1:46:16 PM PDT by CharlesWayneCT
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