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Originally Posted by sebastian_dangerfield
The assets held value because we came in and saved the market in securities backed by them. I believe the Fed was making the market in MBS.
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You're confusing at-the-time market value (yes, the Fed was making the market) and fundamental performance. The bonds that were valueless, but for the Fed's action, wound up performing to some degree. They paid out some portion of interest and principle, such that, in hind-sight, they were not valueless.
That the Fed bought them changed nothing (well, at least not directly) about the bonds' ability to perform.
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The underlying residential mortgages continued to perform like shit for a long period of time.
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Yeah, you can use a lack of precision to pretend you aren't following along, but I don't believe you. Defaults were higher than anticipated. That was a real problem for the lower tranches of structured products, but we're still talking percentage points off the whole.
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It bought time for the economy to recover a bit so some of the mortgages underlying the MBS could start performing again.
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I guess I don't think anyone thinks/thought the Fed's acquisition of distressed assets had meaningful macroeconomic effects. But if by "bought time" you mean kept the banks from failing and making things much, much worse, sure.
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If the Fed had not bought all those securities, the market for them would have frozen. As it should have.
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What's "should?" You see some sort of moral value in market failure? Because, again, the market value of the bonds did not match the underlying fundamentals. That's not a "should" outcome. That's a market failure, making government intervention appropriate (and, in this case, ultimately successful).
