Latest Round of Quantitative Easing

The latest round of quantitative easing, also known as QE-II, came on November 3 after the two-day Federal Open Market Committee meeting with the announcement that Fed would print money to buy an additional $600b worth of treasury bonds by June 2011. The measure, aimed at making money available to borrowers, businesses and home buyers at a more affordable rate and stimulating the near-stalled economy, will help buy about $75b in treasury bonds each month for the next eight months. In addition to $600b asset purchase plan, the Federal Bank of New York will use $250b to $300b in additional money from its mortgage portfolio to buy the government debt over the same period of time (through June 2011).

The first round of asset-buying, also known as QE-I, began in November 2008 and March 2010, with Fed accumulating more than $1.7 trillion in its balance sheet. At present, the Fed has $2.3 trillion in its balance sheet, almost three times it had in December 2007, start of the Great Recession.

PROS of Quantitative Easing
Stimulates economy by availing money to businesses and consumers by driving down the long-term interest rates.

Helps U.S. exports by the drop in U.S. dollar.

CONS of Quantitative Easing
Propels run-away inflation.

Creates bubble in bond market.

Flash Crash

Investigators from the Securities and Exchange Commission and the Commodity Futures Trading Commission issued a report on October 1, 2010 that dealt and discussed in details the chain events behind the May 6, 2010 flash crash, in which DOW fell more than 600 points in 15 minutes. The report pointed out that "a large fundamental trader" (read Overland Park, Kan.-based Waddell & Reed Financial Inc.) put an order to sell $4.1b of an indexed stock futures contract known as an "E-Mini". However, the report did not say that the trader had tried to disrupt the market intentionally.

G-20 Finance Ministers and Central Bank Chiefs Meet

The two-day meeting of finance ministers and heads of central banks from G-20 nations began on October 23 at the South Korean city of Gyeongju in the run up to next month's G-20 summit at Seoul. The most contentious and controversial issue is the currency exchange rates of developing nations, especially China. The U.S. Treasury chief Timothy Geithner is in favor of numerical targets for current account balance for deficit/surplus that would trigger adjustment of currency exchange rates. However, developing nations are fiercely opposed to this mechanism.

HOUSING SECTOR, Fannie and Freddie--Costs of Rescue

On October 21, 2010, Federal Housing Finance Administration laid out three distinct scenarios of how much U.S. needs to pump into Fannie Mae and Freddie Mac in addition to $148b the government had funneled to the two quasi government agencies since their seizure in 2008.

Scenario I: This scenario assumes that the economic situation will deteriorate. The companies need $215b more from the government, and will return $104b, including $13b already paid. The total cost to taxpayers is $215b + $148b - $104b = $259b.

Scenario II: This scenario assumes that housing prices fall and then recover. Under this scenario, both companies need $90b in additional aid and they will return about $84b, including $13b already paid. The cost to taxpayers is $90b + $148b - $84b = $154b.

Scenario III: This sscenario assumes that housing prices will stay flat for the next three years. Under this scenario, government needs to pump in an additional $73b. They will return $80b, including $13b already paid. Total cost to taxpayers is estimated $141b.

Together the companies received $187 billion in taxpayer money. Both companies--Fannie Mae and Freddie Mac--reported profits on November 7, 2013, helping repay the government almost all of the money due. Fannie announced that it made profit of $8.7 billion in the third quarter, and would pay $8.6 billion to the treasury, paying off a total of $114 billion. Freddie on November 7, 2013 announced profit of $30.5 billion for July-September quarter, and would send the treasury $30.4 billion and would have paid in full of its $71.3 billion in due.

Fannie-Freddie Plan Unveiled
An emerging plan in Congress on how Fannie Mae and Freddie Mac should work to avert a 2008-type of economic crisis is in the process of getting final touch, according to a Los Angeles Times report carried by The Dallas Morning News on March 12, 2014. The plan includes measures, not detailed enough until now, that will reduce gradually the government role in mortgage industry. The plan reached between Senate Banking Committee Chairman Tim Johnson, D-SD, and committee's ranking Republican Sen. Mike Crapo of Idaho builds on a bipartisan draft unveiled last year (2013) by Sen. Bob Corker, R-TN, and Sen. Mark Warner, D-VA, and co-signed by five Democrats and five Republicans, and calls for companies that underwrite and issue mortgage-backed securities to have 10 cents in reserve for each dollar in mortgage.

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U.S. 3.8 million Short on Homes

A Up for Growth study released on July 15, 2022 shows that the U.S. is having a home availability crisis. At present, Up for Growth estimates, U.S. is facing a housing shortfall of 3,779,410 homes in 2019. Texas ranks only second after California, with the need easily touching at least 322,105 in 2019.

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