The Federal Reserve announced last week that they will begin to roll over maturing mortgage-backed securities from its balance sheet into the purchase of Treasury bonds.  The first of these proceeds that will find their way into government bonds will occur tomorrow (8/17/10) and will total $18 billion this week and as much as $300 billion over the next 12 months.  Such efforts by the nation's central bank should keep interest rates down, news that is always welcomed by consumers and corporations.  If the Fed succeeds in getting banks to lend more money and consumers to spend more of those borrowed dollars, we may finally put our nation's recession (which began in December 2007) in our economic rear-view mirror (source: Federal Reserve). 

The US stock market reacted to the Fed's news from last week much like a hospital patient hearing a doctor's plan for the aggressive treatment of a serious ailment: relieved to know that the medical professional may have identified a solution that will eliminate the patient's pain, but sobered by the enormity of the effort that is required.  As last week progressed, the S&P 500 stock index gave back all the gains it had achieved earlier this month, finishing its trading on Friday (8/13/10) down 2.0% YTD on a total return basis (source: BTN Research).    

The Treasury Department will hold a conference tomorrow (8/17/10) on the future of mortgage giants Fannie Mae and Freddie Mac.  Since being taken over by the US government on 9/07/08, taxpayers have paid $148 billion to prop up the 2 GSEs (government sponsored enterprises, i.e., corporations created by Congress).  In February 2010, the Congressional Budget Office (CBO) projected that the bailout of Fannie and Freddie will ultimately cost taxpayers $380 billion through the year 2020 (source: CBO).