Alex Pollock on the Fed's holdings of mortgage securities

As of April 2023, the Fed owns $2.6 trillion of mortgage securities.  That is larger than what the total assets of the Fed were at the end of 2008.  That number and the interest rate risk it represents would have astonished previous generations of Federal Reserve governors.  The Fed also experienced a massive mark to market loss on these mortgage securities: a loss of $408 billion as of the end of 2022, or almost ten times the Fed' total capital of $42 billion.

~ Alex J. Pollock, "How do you gt interventions withdrawn when the crisis is over?," The Austrian, May-June 2023

Grant's Interest Rate Observer on the fragility of the CDO market (2007)

We are the first to admit our shortcomings in knowledge about structured mortage finance. But, then, we have found - colleague Dan Gertner, our man on the case, can attest to it - that ignorance about CDOs and ABS is far-reaching. In fact, it reaches far into the population of CDO investors. A subscriber who has made a study of the subprime market - he is a long-short equity investor by trade - e-mails to share his observation that "somewhere in the neighborhood of 70% of CDO buyers rely almost entirely on the ratings because they don't have the time or expertise to evaluate the underlying collateral and structure." It follows, our reader points out, that "once the rating agency integrity is gone, so is the CDO market, it would seem."

~ Grant's Interest Rate Observer, "Wheezing CDO machine," March 9, 2007

Bill Miller on the Fed's ability to avoid hyperinflation

[The Fed has] already monetized a huge amount of this, they've provided an enormous amount of liquidity, there's a trillion dollars of excess reserves sitting on the Fed balance sheet. The issue is, how do you move away from that? I personally wouldn't go so far as Chairman Bernanke that he's a hundred percent certain that they can do it, but, you know, call it eighty-five to ninety percent, because the Fed's balance sheet will normalize on its own. If they don't do anything, all of those mortgage-backed securities will mature and they'll just drift away over the next 7-10 years.

~Bill Miller, chairman and CIO, Legg Mason Capital Management, CNBC's Squawk Box, April 6, 2011

Franklin Raines on the erosion of credit standards

Most of the erosion in credit standards happened on Wall Street, it didn't happen amongst the GSEs. Wall Street led with the securitization of subprime loans, they led with the securitization of non-performing loans, loans that didn't fit the Fannie and Freddie standards. So, they really were the engine.

~Franklin Raines, former chairman and CEO, Fannie Mae, CNBC, May 4th, 2010

Alexander Rekeda (structured finance expert) on the 2007 vintage of RMBS

The 2007 vintage of residential mortgage-backed securities is looking to be one of the best vintages in 10 years.

~ Alexander Rekeda, Mizuho Financial Group, interview with Dow Jones Newswires, April 2007

(Quote was cited in WSJ article, "How Mizuho Loved and Lost in CDOs," May 14, 2008, p. C1. "Looking to charge into the red-hot business of subprime debt two years ago, Mizuho Financial Group Inc.'s brokerage poached 11 bankers, traders and salespeople, headed by structured finance ace Alexander Rekeda, from investment bank Calyon.)

Paul Volcker on the demerits of central banks buying mortgage bonds

A direct transfer of mortgage and mortgage-backed securities of questionable pedigree from an investment bank to the Federal Reserve seems to test the time-honored central bank mantra in times of crisis: lend freely at high rates against good collateral. It tests it to the point of no return.

~ Paul Volcker, speech before the Economic Club of New York, April 8, 2008

(Quote cited in "Trust in Central Banks Passes Point of No Return," Bloomberg, April 24, 2008, by Mark Gilbert)