What the heck are mortgage bonds!


At the Times, you never find out: Binyamin Appelbaum writes the featured report on the front page of today’s New York Times.

Plainly, this is important stuff. Including a pair of bracing headlines, here’s how the news report starts:
APPELBAUM (1/14/12): Fed Ties New Aid to Jobs Recovery in Forceful Move/
With Shift of Policy, Officials Concede Flaws in Incremental Approach

WASHINGTON—The Federal Reserve opened a new chapter Thursday in its efforts to stimulate the economy, saying that it intends to buy large quantities of mortgage bonds, and potentially other assets, until the job market improves substantially.
Plainly, this is important stuff. This leads to today's top question:

What are “mortgage bonds?”

Trust us—almost nobody knows! That includes people who read to the end of Appelbaum’s report, which runs 1441 words.

What the heck are mortgage bonds? On page B4, in paragraph 25, Appelbaum finally gives the impression that he has tried to explain.

Or something. We're not quite sure:
APPELBAUM: The decision to focus on mortgage bonds reflects the Fed’s conviction that the housing market still needs help, and that lower rates on mortgage loans will produce broad economic benefits. Buying bonds drives down rates by increasing competition for the remaining bonds, forcing investors to accept a lower rate of return or move their money into other, riskier assets.
From that, a careful reader could conclude that buying mortgage bonds may lower the rate on mortgage loans. How does this happen? It seems that buying (some) mortgage bonds increases competition for the remaining mortgage bonds.

This forces investors to accept a lower rate of return or move their money into other, riskier assets!

What the heck are mortgage bonds? Very few Times subscribers would know how to answer that question. And not only that:

Even if they read all the way to end, few readers will have any idea what Appelbaum is talking about. Now will they understand the lingo they hear when this topic gets rattled on cable.

We’re not calling this a bad thing. As Paul Reiser said, we’re just saying!


  1. Buying a bond means lending money. When the government buys mortgage bonds, there's increased competition for the remaining mortgage bonds. Other mortgage bond buyers compete harder by offering to lend money at lower rates.

    My main question is whether this new program will work. Past stimulus plans have a poor record. As I understand it, they're supposed to work as a "shot in the arm" for the economy. But, this one is a gradual program. Unlike the previous one-shot of $800 billion or so, this one is $40 billion per month.

    The previous $800 billion stimulus utterly failed to fulfill President Obama's predictions. He said if we passed this program, unemployment would never go above 8%. He predicted a gradual decline. According to Mr. Obama, unemployment would be 5.6% by now.

    According to the Times article, the Fed acknowledged that its incremental approach until now had been flawed. This comment puzzles me. This new plan is incremental. The previous $800 plan was incremental in practicer, because it took a long time to spend this money. However, the new plan is guaranteed too be incrmental.

    A second question is wether this plan is being adopted to help the President's re-election. IMHO the Fed has so much power and so little transparency that there's no way to definitively know what factors motivated their decision.

    1. The Fed has essentially promised to put economic growth *ahead* of concerns about non-existent inflation.

      The new language was this:

      "A highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."

      The fed are expecting to remain easy on money on a very open-ended basis.

      Contrary to you, DiC, it is felt that the separate fiscal stimulus provided by Congress did save many jobs, whether or not it achieved the President's goal notwithstanding.

      Reasonable people think that the Fed cannot do it all on its own, and that given the current net reduction in government (including states, which employ most government employees) economic demand, combined with the very slack state of private demand, further fiscal stimulus is also needed.

      Regarding your second question, the Fed have acted far too late to have significant impact on the average person's felt state of the economy before the election comes, so they could hardly have done it to help Obama.

      A better question is: did they delay this necessary response so long because they didn't want to help (or to seem to help) the President?

      Has the Fed only taken the necessary action now because the writing is on the wall for Romney -- he has no real hope of winning, and the window is too late for their action to affect the real economy before November?

    2. Maybe this new Fed action will help the economy, but rating firm Egan Jones thinks not:

      Ratings firm Egan-Jones cut its credit rating on the U.S. government to "AA-" from "AA," citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country's credit quality.


    3. If you bet against US credit with your money, instead of your mouth, last time, at the time of the debt ceiling debacle rating downgrade -- you lost.

      Ten year rate then, about 2.5%, now under 2%.

      You lost worse if you moved earlier, in June 2011 when the agencies put US credit on negative outlook watch.

      But yeah, Egan-Jones sez.

  2. You know what guys, lower mortgage rates does not give enough benefits to certain mortgage company compared when the mortgage rates are high. The good part of this is that many people will purchase a property.

  3. I think the admin of this web page is genuinely working hard in favor of his web site, since
    here every data is quality based material.
    Also visit my webpage ... same day payday loans

  4. Hi there I am so grateful I found your blog page, I
    really found you by error, while I was searching on Yahoo for
    something else, Nonetheless I am here now and would just like to say thanks for
    a marvelous post and a all round exciting blog (I also love the theme/design), I don't have time to read through it all at the minute but I have bookmarked it and also added in your RSS feeds, so when I have time I will be back to read a great deal more, Please do keep up the great work.

    Look into my homepage; cerramientos

  5. The owner decided after the event to donate half of the proceeds
    back to the students. For adults, a virtual makeover of hair
    and makeup may be the equivalent of a little one hood game,
    with an improved style sensibility that tends to make the knowledge each
    entertaining and inspirational. Every Halloween party
    that people remember later in the year by saying things like "Do you remember so-and-so's Halloween party last year.

    Here is my blog :: Birthday

  6. The players would begin as members of the SCA, going to Phoenix
    for the Estrella War. At the end of the party all
    of the papers write down who they think was the prohibition agent.
    Spice things up by including these Halloween-themes recipes:.

    Stop by my web site: free games

  7. Think about fields that interest you, talents with which you are blessed and needs that are not being met
    to come up with your own list of outside the box job ideas self employment.

    You should teach your dog and talk to him during training sessions.

    With the Easy Walk Harness, if your dog attempts to pull forward the straps
    across the chest and shoulder blades begin to tighten.

    My webpage learn dog training at home

  8. Upon returning to the starting line, the first player must
    pass the sugar cube to the next teammate in line and so on.
    At the end of the party all of the papers write down
    who they think was the prohibition agent. I hope you have fun planing a birthday party for your tween, I
    hope my birthday party ideas for tween's helped you.

    My site antivirus firewall software

  9. In that case, this kind of question should not be taken from any show telecasted in specific country.
    Local country clubs are offering trivia fun for as little as forty dollars per couple.


    Take a look at my web-site ... funny pub quiz names

  10. Loоks lіke my phonе has decided to wοrk аѕ it should thіs weеκ, ӏ can fіnallу see the геsponse foгm.

    Just to sаy, I wouldn't bother myself.

    My page ... long term cash loans for bad credit

  11. Good day! Do you know if they make any plugins to help with SEO?
    I'm trying to get my blog to rank for some targeted keywords but I'm not seeing very good
    gains. If you know of any please share. Appreciate it!

    Here is my blog - pirater un compte facebook

  12. Keep this going please, great job!

    my web page Microsoft Office Gratuit

  13. The decor on the inside of the restaurant is absolutely beautiful.
    *Rounds table format. 28.

    Feel free to surf to my web blog :: good pub quiz names

  14. Lοоks like the cat iѕ out of the bag.
    .. havе a гead to see whats coming..


    Here is my web pаge great loans site

  15. bаrbecue time iѕ apprοаching.
    If I can just gο through this contеnt
    in the next 15 minutes I'll be able to unwind.

    My blog post best tenant loans

  16. I've gotta get it all done cus I won't have the сhаnce tο get it ԁone
    οthеr wіse!

    Also viѕit my webpage ... best loan offers

  17. I'm sure I saw a youtube video put on here, with some good points on this. I can't see the

    Alsο visit my wеbρage personal loans bad credit

  18. Seеms like my ρhone has deсiԁed
    to ωork propeгly this wеeκ, I can
    actually reрly. Just tο say, I ωouldn't bother myself.

    Here is my web page Best Personal loans

  19. Аw, never minԁ. It's the old saying...when it cannot be done, better to do it yourself.

    My web blog - www.ifwscript.com

  20. I'm really enjoying the theme/design of your website. Do you ever run into any internet browser compatibility issues? A small number of my blog audience have complained about my site not working correctly in Explorer but looks great in Opera. Do you have any tips to help fix this issue?

    my web site: Codes Psn Gratuit

  21. In other words, they go against the grain of the careers their parents had.
    *Rounds table format. The Bull's Head Pub, Bangkok.

    Have a look at my homepage ... pub quiz and answers

  22. Can't decide whether to get a book on this myself, or just read several websites. Is there so much to it?

    My blog; personal loans bad credit

  23. Looκѕ likely thаt the cat's out of the bag... I will have a read to see whats coming....

    Feel free to surf to my weblog: Cheap Personal Loans

  24. I do not even know the way I finished up right here, but I assumed this publish was once great.

    I don't understand who you are but certainly you're going to a famous
    blogger should you aren't already. Cheers!

    Also visit my homepage ... Trabajo Orquestas

  25. Mortgages and bonds are closely related in the financial arena. Most consumers don't necessarily think ofbonds when it comes to obtaining a mortgage to buy or refinance a home. When a person wants to buy a home, she needs to apply for a mortgage to help cover the costs. The mortgage lenders, however, do not want to offer their loansto just anybody. People are more likely to rely on financial services like for NorthandLoans.ca purchasing a property. And it’s a very helpful financial option.