Letters to the Editor of Barron’s: Fed Distortion

Published in Barron’s.

Randall W. Forsyth’s column, “The Fed Might Start to Act Sooner to Head Off Housing Boom and Bust. What Could Happen,” (Up & Down Wall Street, May 21), is excellent, but he is too diplomatic when it comes to the Federal Reserve continuing to buy mortgages. Specifically, I’d rewrite two sentences.

1) “There seems little justification to stoke housing demand” should be, “There is no justification to stoke housing demand;” and 2) “The Fed might be exacerbating those problems” should be, “The Fed is exacerbating those problems.”

With the Fed’s postcrisis mortgage portfolio at $2.3 trillion (plus a lot of unamortized premium) and heading up, its distorting effects as the world’s biggest savings and loan are clear.