Subsidies encourage the type of behaviour they are subsidising.
And the Federal Reserve’s QE Infinity is subsidising the market for mortgage backed securities by taking them out of the market at a price floor.
Unsurprisingly, the market for mortgage-backed securities is near all-time highs:
And Wall Street is doing some wild and wacky things.
UBS has just launched a 16-times-leveraged MBS ETN. The ETN, called the ETRACS Monthly Pay 2x Leveraged Mortgage REIT, offers double the return of the Market Vectors Global Mortgage REITs Index – itself an investment vehicle 8x leveraged to mortgage-backed securities.