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Will purchase of more MBS help?

By Judy Martel · Bankrate.com
Monday, November 21, 2011
Posted: 4 pm ET

In 2009, when the government bought mortgage-backed securities, or MBS, to help stop the decline in home prices, the tactic worked to some degree. But although there's some talk of repeating the tactic, Christopher Waller, research director of the St. Louis Federal Reserve Bank, doesn't think it will work this time around.

"Now, we don't see the economy going off a cliff, we don't see the stock market crashing, we don't see jobs disappearing by 700,000 a month, so the circumstances are different," he told Reuters.

Waller called the housing market "moribund," and said he thinks the oversupply of homes and falling prices will just have to work itself through the economy. In past recessions, a strong housing market has pulled the economy up, but this time it's a big part of the problem.

Mortgage-backed securities are debt obligations from pools of mortgage loans. In March of 2009, the Federal Reserve pumped $1 trillion into Treasury bonds and mortgage securities to amp up the ailing financial system and release dollars into the economy.  At the time, it boosted confidence among investors.

But today is different, Waller said, adding that ultimately, economic recovery will take years and the Federal Reserve can't do much more than it already has to speed it up.

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