Is Ben Lost?


The much awaited speech by Ben Bernanke, on Friday, was a bit of a non-event. It was interesting, however, to see the 30-year bounce, from 3.55% to 3.7%, the moment that Ben explained his cunning plan to push long-term interest rates down. But at least we learned that $140 billion of the $1.25 billion the Fed advanced to buy agency debt and MBS, got repaid.

End the Fed Ron Paul Best Price: $1.12 Buy New $8.53 (as of 10:10 EST - Details)

One question Ben: “How much did you pay for the $140 billion that got repaid? Did you make a profit, or are you going to wait until Ron Paul’s audit before you let us know how that went?.”

I know I’ve got a dirty mind, but I can’t help thinking that if Ben had made a profit on that transaction, he would have been crowing about it. I loved this bit, particularly the “Thus”:

Thus, our purchases of Treasury, agency debt, and agency MBS likely both reduced the yields on those securities and also pushed investors into holding other assets with similar characteristics, such as credit risk and duration. For example, some investors who sold MBS to the Fed may have replaced them in their portfolios with longer-term, high-quality corporate bonds, depressing the yields on those assets as well.


1. Even Alan Greenspan and Larry Summers conceded that there is absolutely nothing that the Fed can do to change long-term Treasury yields. But, now Ben the Boy is saying that he can do that, he must be Superman!

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August 31, 2010

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