US Treasury Announces Wind Down of $142B MBS Portfolio…. No Surprise as to Who the Buyers Will Be

Earlier today, the US Treasury announced it intentions to begin the long anticipated unwinding of its US$142 Billion Mortgage-Backed Securities Portfolio that was accumulated through the Government’s Financial Stabilization Programs, beginning in 2008, at the lowest points of the financial crisis.

In yet another “I told you so” moment, the Treasury indicated that they expect to make a profit on these purchases made from banks during those dark days.  Despite the loud drum beat of naysayers and arm-chair experts who indicated that the program would be a disaster and cost US taxpayers billions, it turns out that all those bankers, who were reluctant to sell into the program but were compelled by artificially low market prices (at least in terms of historic trends in valuations) and a need to meet capital requirements or to sustain general liquidity in their mortgage businesses  to do so, were probably right after all.

Immediately, speculation centers on these same banks as the most likely candidates to bid on these Treasury sales.  Why not, they have known all along that the long-term value of these securities is excellent and who knows the underlying fundamentals of the underlying collateral better than the bankers that created the securities to begin with.

Maybe it’s just us but we see these predicted results as one of those few times when the end result looks exactly like what the authors intended.  The program provided a vital link to liquidity for the banks during a time of crisis and the banks will now re-purchase the securities at an overall cost to those banks (and a profit to the Government) which is in line with historically fair market valuations.

We suspect that such a good news story will get much less attention than it probably deserves.  Bravo to Treasury on this one.  God knows they get beat up enough when they make a mistake.

About markferraris
Managing Principal Orchard Street Partners LLC

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