By now, everyone would have heard of Freddie Mac and Fannie Mae. But have anyone heard of Ginnie Mae?

They issue Mortgage-Backed Securities (or now known popularly as toxic waste). But what is unusual about this MBS is that it is guaranteed by the full faith and credit of the United States Government. For Singapore residents, they seldom heard of Ginnie Mae and this is the website: http://www.ginniemae.gov/. In other words, the MBS is as safe as the Treasury. Why am I mentioning it? For non-US residents, this is like a story of fairy-god mother. If anything goes wrong, fairy-god mother will appear to save the day. How could the most sophisticated and "advanced" civilization be so reckless as to guarantee toxic waste? The current crisis can be partly attributed to the US government reckless behavour such as these.

In the meantime, the Fed intends to conduct open market operation to acquire US$300 billion worth of Treasury debt from the market. Since its interest rate is effective zero, it has no other policy tool other than to conduct open market operation to print US$300 billion of money into the system. When market heard this, Treasury prices increase. This is because when it is expected that there will be a surge in purchase for the treasury, the treasury price increases in anticipation for this purchase. This effectively decreases the yield of the treasury.

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