There are some who think it’s time for the central bank to exit the market. Others say such an abrupt end would undo the Fed’s efforts to keep mortgage rates low and instead suggest a gradual wind down of its purchases and an extension of the program into the early months of next year. – Nasdaq¹

A year ago last Friday, exactly 7 years and 7 days after 9/11, the US became a command economy.

Now, in a "fit of absent-mindedness," key agencies of American financial policy find themselves with side-businesses as Soviet-era economic secretariats, and they don’t quite know what to do about it.

Starting from zero eight and a half months ago, the Federal Reserve Board has gorged on $685 billion worth of mortgage-backed securities, making "the Fred" America’s dominant player in residential real estate.

Meanwhile, thanks to the 9/11 ’09 collapse of Corus, the Federal Deposit Insurance Agency has suddenly been propelled into a leading role in commercial RE.

Dow Jones is covering both aspects of the story, framing it as an effort to return to capitalist business-as-usual, but Murdoch’s deploying his bigger guns² against the commercial side, as Ms Bair prepares to impersonate Jesse Jones, hopefully without "discovering" prices for strip malls in the Ghost Towns in the desert around Las Vegas that will send CMBS asset prices (and the holders of such assets) straight into the tank.

The Corus transaction is being structured as a partnership between the agency and winning bidder. The FDIC will hold a 60% stake and provide financing, according to people familiar with the matter. While seven other FDIC deals since 2008 have had similar partnership structures, the Corus deal is by far the largest. A similar arrangement was made in last week’s sale of $1.3 billion in residential mortgages to a venture between the FDIC and Residential Credit Solutions Inc., these people said.

The public-private partnership structure is modeled on about 70 such deals pioneered by Resolution Trust Corp., a federal agency formed to clean up the savings-and-loan mess of the late 1980s and early 1990s. Rising property values in the mid- and late-1990s enabled the RTC to reduce taxpayer losses.

Still, the partnerships expose the U.S. to more financial risk than it might face by selling assets completely to private investors. The Corus auction also is complicated by an oversupply of condos in some of the same states where Corus concentrated its lending, such as Florida, California and Nevada.

———————

[1]: "Mortgage Investors Await Fed’s Next Move On Bond Purchases", Prabha Natarajan, Nasdaq, September 22, 2009.

[2]: "Corus Auction Promises Property ‘Mark’ ", by Lingling Wei and Anton Troianovski, Wall Street Journal, September 23, 2009.

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