The Fed Obviously Holds Our Accounting Skills in High Regard

Tuesday, September 01, 2009 , , , 1 Comments

Come on, give us a little more credit than this, Fed boys. $14 billion profit eh? First of all, how can we verify that number if we have no idea what comes and goes on the Fed books? Second of all, even if we knew what's going where and to whom, what good does it do us to hear this? $14 billion? Kiss my ass, what about AIG? Worse, what about the endless chain of currency swaps arranged by our own central bank to keep the dollar floating along with the rest of the financial crack addicts trying to print their way out of disaster?

You bet your sweet ass if we weren't all falling apart at the same time this would be much, much worse. Why do you think Angela Merkel is always making a stink about ending the stimulus madness?

This is a joke, and an offensive one at that.

Taxpayers and Congress worried that the Federal Reserve was making dangerous bets by lending money to troubled banks during the credit crisis. Big banks could default on the loans and cost the government tens of billions of dollars.

At it turns out, putting money into America's large financial firms has been a profitable enterprise, very profitable.

The Financial Times has gotten access to documents from the Fed that show it has made $14 billion providing money to the financial system. According to the paper, "The internal estimate is based on the difference between the fees and interest on the lending facilities and the interest the Fed would have earned had it invested the funds in three-month Treasury bills."

The news is not terribly important for several reasons. The Fed still has large sums of money invested in other areas of the financial system as part of its very broad rescue efforts. Some of those investments may eventually show losses.

In addition, the Fed was virtually forced to loan large banks hundreds of billions of dollars to keep them afloat. The profits that the agency made are very modest compared to the risks it took. The $14 billion may seem like a lot of money, but, given the capital exposure involved, it really isn't.

Finally, the Fed may not be finished putting money into the credit system. Defaults on business loans and problems with commercial real estate could send banks back to the agency with requests for more capital. These new "investments" may not do as well, which means that the Fed could give back its $14 billion profit fairly fast.

This is akin to saying "Well, I'm dying of cancer but it's okay because that scratch I got on my knee last week healed nicely."

Give me a break. Perhaps the Fed needs a lesson on assets and liabilities.

What makes it funnier is that this is merely in comparison to what the Fed might have made had it put bailout money into T-bills instead of injecting it into banks. O rly? Suddenly the Fed measures success in abstract terms like "opportunity cost"? Please.


The Federal Reserve has made a $14bn profit on loan programmes that have provided hundreds of billions of dollars in liquidity to the financial system since the start of the crisis two years ago, according to Fed officials.
You should have known it was bullshit as soon as they said "internal estimate."

So not only does the Fed feel compelled to bend us over, they don't even leave a crisp $100 on the nightstand before they sneak out the front door. Cute, boys, very cute.

Naked Capitalism also covered this and may have done a better job than I as I am a tad too outraged to see straight at the moment.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Hal said...

Great analysis of this charade. And the last time I understood the meaning of profit, it was the stuff you got back after you your investment had been returned to you. Last time I looked the majority of that bailout money was still MIA.