The Federal Reserve is a relatively new institution; it was created at the beginning of the 20th Century. And it has authority to "create" money out of thin air (although it doesn't mint and print money). Now, there are rumors that the Fed may continue to take an active role in the economy by buying mortgage bonds that could then be sold as government backed debt to other investors.
``An RTC-type structure is interesting, and it may not be that much of a burden on taxpayers in the long run,'' said Barr Segal, a managing director at Los Angeles-based TCW Group Inc. who helps oversee $80 billion in fixed-income assets. The government should purchase the mortgages and reissue ``debt that's backed by the U.S. government and there you go, you've unclogged the drain,'' he said. ...
``Something like that would be very helpful, but the Fed was not designed to and shouldn't assume a huge amount of risk on behalf of taxpayers,'' said Alan Blinder, a Princeton University professor and former vice chairman of the central bank. ``That should come out of the elected parts of the government, which means the administration and Congress.''
It is debatable whether any of the moves made by the Federal Reserve in recent weeks (especially last week) will help the economy in the long run. And some are beginning to worry that there is too much economic manipulation happening right now.
In any case, the Fed insists that it isn't planning on buying mortgage bonds right now. But as we've seen in the past, if enough investors clambor for something in the name of "economic stimulus," the Fed under Ben Bernanke has been more than willing to comply.
Do you think the Fed should buy mortgage bonds?
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