The Fed's Raging Conflict(s) of Interest

I'm not sure where to start with this so let's just jump right in and hope we get to the good part sooner or later, shall we? The point of all this (if you can't afford the two and a half minutes it will take you to scan the expletive-filled rant you're about to read below) is that the Fed is no longer independent (if one believes it ever was), nor is it in any position to dictate monetary policy since it has such an interest in the outcome. Funny, when it was just markets and dollars they bumbled it all they cared to but now that they've got $2 trillion on the line and unwashed masses to appease, it's all about ROI, bitches.

Chuck Butler via Daily Reckoning:

Last week, I carried on about the Fed making $52 billion last year, and wondered why this wasn’t as big a deal as Exxon/Mobil’s huge bonanza a couple of years ago. I mean, at least when Exxon/Mobil made billions, there were stockholders who benefited… Normal people – moms and pops, etc. When the Fed had the bonanza it handed it over to the Treasury, which some would think would go back to the taxpayers… Yeah, right…

But, I got to thinking this past weekend about the bonds the Fed is holding… No wonder they don’t want to see interest rates rise! For, if interest rates rise, their holdings would take on water, and… The Fed has stated that they intend to sell these bonds back to the markets some day… Well, try doing that when interest rates have risen on your bond holdings!

And… What happens if interest rates rise so high that the Fed starts taking on water, with negative interest rate spreads on the their holdings? Talk about cries to audit them then!

(h/t Jeff for the DR link)

The Fed "made" $52 billion last year and returned $46 billion (what the media mistakenly called Fed "profits") to the Treasury. Want to take a stab at what the Treasury will do with that money? How about pay down some interest and issue a shit ton more T-bills for the Fed to buy? Again, I like a good jerk off as much as the next girl but enough is enough.

What the media didn't really mention while they were getting worked into a lather over said Fed "profits", however, were Fed shareholders. Yes, shareholders. Do Fed shareholders get dividends for performance like that?

In February of 2009, the Fed was urging TBTF banks to put bailout money into loans, not dividends. Did they bitch at JP Morgan for still not following directions nearly a year later when it handed over a 6% return for JPM's chunk of Fed ownership? Add it up; each private bank that is legally required to own stock in the Fed as a condition of membership in the System got a 6% dividend before the Treasury got what was left over. I have never seen a comprehensive list of Fed stockholders (I imagine one exists somewhere, if you know where please let me know) but one can easily guess that every Fed-supervised bank falls under this rule and those number in the thousands.

That means Citigroup. Bank of America. JP Morgan. Wells Fargo. You get the point. They also got 6% each at the beginning of 2009, just months after taking billions in TARP money. If this sounds bizarre to you, good, it means you're paying attention.

And hey! It gets better (of course it does):

The interest on bonds acquired with its newly-issued Federal Reserve Notes pays the Fed’s operating expenses plus a guaranteed 6% return to its banker shareholders. A mere 6% a year may not be considered a profit in the world of Wall Street high finance, but most businesses that manage to cover all their expenses and give their shareholders a guaranteed 6% return are considered "for profit" corporations.

In addition to this guaranteed 6%, the banks will now be getting interest from the taxpayers on their "reserves." The basic reserve requirement set by the Federal Reserve is 10%. The website of the Federal Reserve Bank of New York explains that as money is redeposited and relent throughout the banking system, this 10% held in "reserve" can be fanned into ten times that sum in loans; that is, $10,000 in reserves becomes $100,000 in loans. Federal Reserve Statistical Release H.8 puts the total "loans and leases in bank credit" as of September 24, 2008 at $7,049 billion. Ten percent of that is $700 billion. That means we the taxpayers will be paying interest to the banks on at least $700 billion annually – this so that the banks can retain the reserves to accumulate interest on ten times that sum in loans.


Chuck is right, the Fed will now need to consider a return on investment above all else because it knows the second it starts bleeding cash (even if it bleeds it for a good reason, like draining funny money out of the system - the bloodletting of the financial crisis, as it were), the pitchforks hit the air and the unwashed masses start calling for the Fed's head on a plate again. But so long as they can dominate the headlines with crap like "Fed Makes a $46 billion profit!!", the sheep aren't out for blood and satiated until the next "earnings report". Go back to your lives now, nothing to see here...

In what other business would the company also be in charge of supervising the financial soundness of its own shareholders? Only in central banking I suppose.

I will let you in on a little secret: the Fed knows it cannot force banks to lend. In fact, the Fed is better off if banks don't because that means banks can keep putting their cheap money into T-bills, meaning the Fed doesn't have to. They've already got plenty and if they decide to raise rates without warning before they've unloaded a good amount of what they've built up in the last, oh, year or so, they're screwing themselves. As if anyone wants Treasurys anyway. Oh wait, "foreign central banks" LOL.

Isn't that a conflict of interest?

I could have my definitions wrong, it's happened before.

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.


W.C. Varones said...

That's like saying the Gambinos have conflicts of interest.

Some enterprising young prosecutor should put together a RICO case against the Dirty Fed.

Anonymous said...

two words on the subject of the Fed being forced into selling uderwarter bond holdings in the future - Wilbur Ross. (just an opinion).

- Jeff

I think everyone is missing the real point about the Fed.

The Fed is a privately held corporation, company or partnership. We really don't know which but we do know it is not a government agency and that it is a private company. It could be a foreign company for all we know.

We know that our banks are all members of the Fed but that does not make them owners of the Fed.

I have seen it reported that HSBC and ING banks are possible owners which would indicate that foreigners really control our money - not Americans.

We also know that the Fed and the Central Bank of England are closely tied together and the Central Bank of England is still controlled by the Rothschild family.

Why do we even need a Federal Reserve to buy or sell Treasuries or make our funny money?

Sure, they give some profits back to the Treasury and pay banks as well. This is like a company manufacturing a product, selling that product to itself at a mark up and that company declaring a profit as a result.

We don't need to question the Fed or even audit the Fed. We need to get rid of the Fed all together.

Let our Treasury Department make our funny money, eliminate the middle man (the FED) and increase the value of our dollar.

But the bottom line is that the FED is part of an international group who are following the doctrines and manifesto layed down by Meyer Rothschild to take control of countries by taking control of their money supply and it is working.

As I have quoted him (Meyer Rothschild)many times; "Let me control the money of a nation and I care not who makes its laws". This statement was made in his manifesto for creating the "New World Order".

The recent ruling by the Supreme Court allowing corporations unlimited spending on campaign ads is yet another move towards Rothschild's plan and will ultimately give the bankers led by the FED total control of our nation.

No one is safe from this silent revolution and we are losing. The banks (and FED) are winning.

For Democracy to survive there can be no "Central" anything with power. A "Central" power is contrary to our Constitution, contrary to our freedom and contrary to a truly free society.

We are not free, we are all slaves to this system.