Much more here: http://market-ticker.org/akcs-www?post=171794However, much of what The Fed has done thus far is flatly unlawful.
As I have repeatedly pointed out for more than two years, The Fed is not empowered to buy (as opposed to loan against) any security that does not carry the full faith and credit of The United States.
Fannie and Freddie paper does not qualify for this treatment - not since Fannie was split off from the government as a quasi-government company and Freddie formed. Ginnie Mae paper is the only mortgage-related paper that carries the requisite guarantee.
The Fed relies on a rather-ambiguous CFR cite to support buying and holding that paper. But CFRs do not override black-letter law, and Section 14 of The Federal Reserve Act control what The Fed can actually buy. That's law .vs. CFR, and law (because it is actually passed by Congress and signed by The President) wins....
Its a very good question, and I'd love it if the constitutionality of the Fed was challenged in the Supreme Court. I'm 100% certain that the justices wouldn't dare cross the Federal Reserve (We know what happens to presidents when they challenge the Fed), but at least it would show these jerks we're getting tired of this crap.
Also see: Article 1, Section 8, clause 5 and Article 1, Section 10, clause 1