Banks to the Fed: "Rewrite the Accounting and We'll Totally Help with Your Exit Plan"
Pic credit: David Dees
Now if this isn't the reacharound to beat all reacharounds, I'm not sure what is. The Fed doesn't have the authority to do this and if they do, I think the bloodless coup can finally be considered "Mission Accomplished".
A handful of banks have told the Federal Reserve they could do more to support the central bank's exit from its emergency cash infusions if a key accounting rule was changed, according to a person familiar with the situation.
At issue are reverse repurchase agreements, a cash-draining tool, that the banks said could be used to a greater extent when the time comes if dealers did not have to record them on their balance sheets when they act as middle-men, the source said.
In its efforts to help the economy recover from a severe recession, the Fed cut interest rates to near zero last December, and this year further eased financial conditions by buying longer-term Treasuries and mortgage-related securities. The Fed's balance sheet has more than doubled to $2 trillion in the process.
No decision has been made on what tools the Fed will use and in what order to eventually tighten monetary policy once the recovery picks up steam.
Ok wait for it. Remember that part about banks being undercapitalized? Or the one about the battered balance sheets? Well if only the Fed can strong-arm FASB into fudging the rules a tad, none of that will matter and it'll be the Fed's ass - not the banks - on the line. But who is ultimately liable for the non-asset side of the Fed's continually swelling balance sheet? If you answered Ben Bernanke, you may leave my website now you dumb fuck.
An accounting rule change that would enable dealers to net their positions would mean the dealers could be intermediaries on reverse repo trades without incurring the costs of having to hold additional capital against a bigger balance sheet, the source said.
A precedent for this is the netting of positions used between dealers in the Fixed Income Clearing Corp (FICC), but with money market mutual funds and the Fed on either side of the transaction, the source said.
If dealers act as middle-men between the Fed and money market mutual funds they would be expanding their balance sheets for little benefit, the source said.
"All the dealer community receives is a big balance sheet consequence," the source said.
"And that is why dealers have made the point to the Fed that encouraging large balance sheet charges without positive economics will not serve as a strong foundation for a successful program."
Something reeks of financial incest and the saddest part is Uncle Ben might be happy to bounce the banks on his lap if it means a Fed exit strategy that may actually work. I still have yet to see anything that proves they've got one at all.
FASB, if you do this all of you deserve to spend the remainder of your days at Gitmo, this is financial terrorism and there's no hiding out in the cave for you all.
Also, since when do the banks get to punk the Fed? Oh wait...