The best way for the Fed to help reverse the sagging economy is for it to buy some of the $6 trillion in outstanding mortgage-backed securities that have Wall Street so nervous, investors say. The move would ease the credit crunch but put taxpayers at risk. It’s an option the Bush administration has been reluctant to take, reports Bloomberg.
Despite European reports to the contrary, a Fed spokesman today denied the central bank was in talks to purchase mortgages. But buying the debt, then reissuing it with government backing, could be the only option left that would restore confidence in the financial markets and open up credit markets, proponents say. Investors have shied away from buying mortgage-backed bonds, opting for safer Treasury bonds.