US Treasury Sales Off Sharply — Doubt That U.S. Can Finance Recovery Plans: Nuclear Mortgage Option Grows More Likely

Plain Truth. The securities (all 16 layers of them) are not worth anything because the mortgages, notes and obligations are either paid or unenforceable. It may not be politically correct but there is only one way out of this as I see it — REALITY. Those “mortgages” are worthless which means they don’t exist. That means a HUGE recognition of wealth for the poor and middle class people stuck in those mortgages that were securitized. It also means a huge loss to investors when all layers are peeled off and they discover nothing inside. THEN strike a deal with the investing community to make good on their worthless investments using part of the equity from the homes that won’t have mortgages. If you do it in the right order, the homeowners get restored to positive equity, the investors recover some of their investment, and if you add equity appreciation clause the investor could conceivably recapture the entire investment. It creates a wealthy middle class and lifts many people out of poverty. And that, my friends, will create spending. Then we have a credible plan to pay back the rest. Let the too big to fail banks fail. Let the 7,000 other banks & credit unions that didn’t deal in toxic assets take up the slack and start the lending. THAT takes care of the financial system. By stepping up to the plate and making amends, we regain our standing and can work toward regaining the moral high ground. Right now the only people out there in Europe and Asia who have been buying US bonds are not buying anymore and they are not real keen on going into debt the way we did. Transfer the debt, transfer the wealth, transfer the equity, and let the chips fall where they may. It was our boys who created this mess on our watch. It’s our job to fix it — and not on someone else’s dime because the dime isn’t there. When Germany lost the war they had to pay war reparations. If we want to be able to do business, we need to show we are concerned about what our own people on Wall Street did and what our own regulators didn’t do. Any other way comes out the same — we are asking the world to socialize our self induced loss as a nation on the world financial and political stage. We need leadership, not bi-partanship. Obama was elected to change things not bring ideologues along for the ride. We can’t afford them.

Foreign debt purchases fall sharply in January

Offshore banking centers sell Treasurys; central banks sell agencies

By Laura Mandaro, MarketWatch
Last update: 3:59 p.m. EDT March 16, 2009
SAN FRANCISCO (MarketWatch) – A big jump in foreign sales of long-term U.S. securities raised concerns Monday that the U.S., in the midst of a massive debt issuance to fund its economic revival plans, may run into trouble getting other countries to finance its deficit.
Foreign purchases of long-term U.S. Treasurys, Fannie Mae (FNM

January’s sales marked a record low, said currency strategist Michael Woolfolk, and the reasons for the plunge could spell bad news for the U.S. dollar.
“This was a truly awful report, throwing into question the funding of the U.S. current account deficit,” said Woolfolk, senior currency strategist at the Bank of New York Mellon, in emailed comments.
Economists anticipate the U.S. current account gap, or the balance of trade with other countries in goods, services and investments, narrowed to a deficit of about $137.5 billion in the fourth quarter. The Commerce Department releases that report Wednesday. See Economic Calendar.
Concerns that U.S. creditors could balk at buying more U.S. debt were thrown into relief last week after China, the biggest holder of U.S. government debt, said it was worried about the safety of its U.S. bonds.
The U.S. is in the midst of raising more than $2 trillion by selling Treasurys, beating past records by a wide margin, according to estimates by big bond dealers.
Importantly, both China and Japan increased their holdings of U.S. Treasurys, though Chinese purchases slowed from their 12-month average in December and January, said RDQ Economics.
Troubles at now nationalized mortgage finance giants Fannie Mae and Freddie Mac prompted foreign investors to flee this category of government debt in the second half of last year, helping drive up yields relative to Treasurys. In response, the Fed in late November said it would start buying those bonds to bring down yields and related mortgage rates.
The continued selling of agency and U.S. corporate bonds suggests a structural problem within the U.S. balance of payments “that could begin to undermine the USD,” Woolfolk said.
On Monday, the U.S. dollar fell against the euro and other trading rivals. Analysts attributed the decline to investors buying more risky assets, such as stocks and the British pound, after Fed Chairman Ben Bernanke said he expected the U.S. recession to end this year.
One euro bought more than $1.30 for the first time since February. The dollar index slid 0.1%. Read more in Currencies.
U.S. Treasurys fell on the same news, with yields on the benchmark 10-year (UST10Y

Tax haven sell-off
More broadly, monthly foreign capital flows that include net foreign purchases of long-term securities, short-term U.S. debt such as Treasury bills and banks’ liabilities, fell to negative $148.9 billion. That was also a record low, said Woolfolk, and suggests foreigners fled T-bills and banks deposits after plowing their cash into these safe-haven holdings in October and November.
The Treasury’s report on capital inflows rarely moves markets because of its considerable lag: Investors won’t get February’s report until mid-April. But viewed over the long term, it can yield clues on the debt purchases that have been bolstering the dollar and keeping yields on U.S. Treasurys low.
One trend of note was a large volume of sales in tax havens, including Caribbean banking centers and Luxembourg.
Caribbean holdings of U.S. Treasury securities fell $20.9 billion, while holdings in Luxembourg slid $10.2 billion.
“The sales reek of hedge fund selling and quite possibly from investors who were Madoff-ed,” said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co., referring to reports of Luxembourg-based hedge funds said to have lost money by investing with fraudulent New York financier Bernard Madoff.
Or, said analysts at RDQ Economics, the sale of Treasurys by Caribbean-based investors may reflect hedge fund money that had been betting that the Fed would by U.S. Treasurys – as it suggested in December it was considering. It has refrained from buying Treasurys on the open market so far. “Once it appeared that the Fed was backing away from such an action, those positions were taken off,” they said.
Laura Mandaro is a reporter for MarketWatch in San Francisco.
U.S. Treasury 10 Year

Delayed quote data
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UST10Y) gaining 6 basis points to 2.95%. Yields have edged up since the start of the year, but at levels below 3%, they are still historically quite low.

Fannie Mae

FNM) and Freddie Mac (FREFRE) bonds, corporate debt and stocks — netted for acquisitions of foreign debt from U.S. residents — dropped to negative $43 billion in January from positive $34.7 billion in December, said the Treasury Department Monday.

One Response

  1. “US Treasury Sales Off Sharply — Doubt That U.S. Can Finance Recovery Plans: Nuclear Mortgage Option Grows More Likely”

    Neil-
    Truer words have never been spoken. Thanks for keeping up a good fight!

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