Shock and Awe: The NY Fed Bought Lehman Crap (Who Needs an Audit?)

Squeeeeeeeeal Audit the Fed! You can if you really want to but you'd need someone who knows Federal Reserve accounting, presumably the only people who do are Federal Reserve accountants. Skeptical CPA has also made it known that he's available and interested in the gig but beyond those select few, I still haven't seen evidence that a Fed "audit" would accomplish anything except waste time and tell us what we already know.

Keep FOIAing their asses but in the end, it's Congress' problem to deal with. That we have control over. Do your representatives in Washington give a rat's ass about the Fed?

Money News:

As Lehman Brothers headed toward bankruptcy in 2008, the New York Federal Reserve Bank, under the direction of now-Treasury Secretary Tim Geithner, reportedly allowed itself to be used as a "warehouse" for Lehman Brothers junk loans.

A report from Anton Valukas, an examiner appointed by the court to investigate how Lehman’s accounting, found clear evidence that the New York Fed knew that Lehman was sending it garbage that it had no intention to market, even though Fed guidelines say it can only accept investment grade bonds.

The move, in fact, created baskets of assets for the specific purpose of selling to the Fed for far more than they were worth, The Huffington Post reports.

Meanwhile, the Fed and Geithner both strongly oppose a congressional measure to authorize an independent audit of the central bank and its lending facilities, the Post said.

Without an audit, the Fed is able to conceal the specifics of what it holds on its balance sheet. If the Lehman deal is any indication, the Fed is hiding billions of dollars in toxic loans on its books.

The revelation provoked immediate comments from Congressman Alan Grayson.

"The Fed legally is forbidden from taking such assets, Grayson said. “There's a legal requirement that the Fed's assets be investment grade."

That's funny, we don't seem to care about the reverse for foreign governments who end up loaded up with our non-investment grade bullshit. And if that's the case, what is the Fed doing with Maiden Lane I - III and $1.25 trillion in mortgage-backed securities? That isn't a rhetorical question.

Speaking of those MBSs, if the Fed is smart, it will ignore the seizures and unload them as efficiently as possible moving forward. RIP OFF THE BAND-AID, it will never get better until they do.

We can go back to audit the Fed but I'm not sure what good that would do. I'm still clinging desperately to the literal definition of audit. On top of that, I've gotten awfully cozy with the Fed in the last year and a half and I've come out of it realizing that they are generally pretty obvious about all of this. It isn't too difficult to figure out what they're doing, they're bad at this game by now and get worse as they get distracted by keeping an ever growing number of balls in the air. Being both supply and demand in financial markets is hard work, how could they possibly keep up the anti-transparency campaign on top of it? But the same guys available to "audit" the Fed would be the ones who missed Lehman so what do you think that will accomplish?

And so they break.

Leave the Fed alone. I'm still serious. Grab some buttered popcorn Jelly Bellys and a seat.

See also: Don't Throw the Fed in the Briar Patch! and New Fed Financial Accounting Manual Shows Creative Ways to Cook the Fed's Books. Erm, "Guidance"

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.


malus Diaz said...

*Passes a J*

*eats some popcorn*

./Whisper *When do these advertisements end? Isn't there supposed to be a show?*

Anonymous said...

"But the same guys available to "audit" the Fed would be the ones who missed Lehman so what do you think that will accomplish?"

Good point.