Honest corruption in Fed MBS purchase program
The Federal Reserve has paid a yearlong bribe to the housing market to keep mortgage rates almost a full point below average. The $1.25trn payoff also known as the Mortgage Backed Security purchase program is about to end. Will the mortgage market stay bought? Honest corruption is when a bribed official performs as promised without asking for more money or welshing on the deal entirely. It is a variant on Senator George Washington Plunkitt’s famous term ’honest graft’. Senator Plunkitt, a 19th century New York Tammany leader said it best, “Yes, many of our men have grown rich in politics. I have myself. I've made a big fortune out of the game, and I'm gettin' richer every day, but I've not gone in for dishonest graft - blackmailin' gamblers, saloonkeepers, disorderly people, etc. - and neither has any of the men who have made big fortunes in politics. There's an honest graft, and I'm an example of how it works. I might sum up the whole thing by sayin': 'I seen my opportunities and I took 'em.'" The Fed first announced the Mortgage Backed Security (MBS) program in late November 2008 and expanded it to $1.25trn on March 18th last year. Purchases of fixed rate agency MBS paper--Fannie Mae, Freddie Mac and Ginnie Mae only--began in January 2009 and will end at the end of this month. In the Fed’s description, “The goal of the program is to provide support to the mortgage and housing markets and to foster improved conditions in financial markets more generally”. In practical terms, the program has two intentions, keep mortgage rates from rising and keep the funds flowing to the housing market.