OK, it’s not a majority owner, but the government has an impressive stake in the $4.5 trillion agency mortgage-backed securities market. Barclays Capital’s last count, as of July 3, puts Federal Reserve purchases at $621.6 billion since it launched the program in January. Separately, the Treasury Department has picked up more than $145 billion since the government put Fannie Mae and Freddie Mac in receivership in September. The Treasury data is through the end of May.
As part of the government plans to overhaul AIG’s massive bailout package (announced in March), the company said Thursday it would give the government stakes in two of its most cherished assets – American Life Insurance Company, Alico, and American International Assuarance, AIA, – in return for paying down a good portion of its loan with the central bank.
The Federal Reserve is entering a period of transition as a two-day meeting concludes today. Many questions remain on whether a recovery can take hold and on whether the central bank should start withdrawing from the extraordinary measures it took during the financial crisis. This may also be the beginning of the end of the Bernanke era at the Fed: President Obama must decide by next year whether to renominate the Fed chairman, whose term expires at the end of January.
Markets are fixated on the outcome of the Fed’s two-day meeting, with the statement due out around 2:15pm. Few expect big changes on its policy, however, so tweaks on language about the economic outlook and a possible extension of its purchase of $300 billion of Treasuries, which expires in September, would get tongues-wagging if not markets moving.
The Financial Times reports that the Federal Reserve is taking on another mammoth undertaking – reform of the $4.5 trillion repurchase agreement market, which acts as the very plumbing of the U.S. financial system. And the central bank should. This plumbing is looking creeky after the Lehman Brothers failure exposed some big cracks that had threatened to destabilize global markets.