Since its earnings season, and everyone is closely watching the financials, we might as well talk about one more bank’s  record earnings: The Federal Reserve.

An analysis by the Washington Post’s calculates that the Fed return a substantial amount of money to the Treasury.

The central bank’s higher earnings were primarily from two lines of business: Quantitative Easing (QE) saw the Fed aggressively buying bonds, push rates down and value up. The Fed quadrupled its asset allocation of U.S. government debt and mortgage-related securities to $1.8 trillion dollars last year, up from $497 billion in 2008. Bonds rallied strongly as the Fed sent interest rates to zero.

Another source of revenue for the bank was interest income on this paper. The ZIRP policy does not prevent the Treasury from paying about 3% or better ont he 10 year, and higher rates on the lower grade mortgage paper. The central bank also aggressively acquired higher yielding junk paper — non-investment grade — much of it festooned with sub-prime losses. This business line represents potential losses in the future.

All Fed accounting in this report is pro-forma.

The 3rd profitable division was emergency loans to banks and others, along with programs to prop up credit card lending, auto loans, and other consumer and business lending. Central bank interest and fees were also extremely profitible.

Here’s WaPo:

“The Fed will return about $45 billion to the U.S. Treasury for 2009, according to calculations by The Washington Post based on public documents. That reflects the highest earnings in the 96-year history of the central bank. The Fed, unlike most government agencies, funds itself from its own operations and returns its profits to the Treasury.

The numbers are good news for the federal budget and a sign that the Fed has been successful, at least so far, in protecting taxpayers as it intervenes in the economy — though there remains a risk of significant losses in the future if the Fed sells some of its investments or loses money on its stakes in bailed-out firms.

This turn of events comes as the banks that benefited from the Fed’s actions are under the microscope. Starting at the end of the week, major banks are expected to announce significant earnings and employee bonuses. Anger in Washington is at such a high boil that the Obama administration will probably propose a fee on financial firms to recoup the cost of their bailout, officials confirmed Monday.”

Full earnings estimates for the central bank will be released later today. No word on if the Fed will be handing out any bonuses this year . . .

>

Source:
Federal Reserve earned $45 billion in 2009
Neil Irwin
Washington Post, January 12, 2010
http://www.washingtonpost.com/wp-dyn/content/article/2010/01/11/AR2010011103892.html

Category: Credit, Federal Reserve, Fixed Income/Interest Rates

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

47 Responses to “Federal Reserve’s Record 2009 Earnings: $45B”

  1. dead hobo says:

    $45B / .01 =-$4.5T.

    Assuming a 1% rate on monetized UST purchases and $45B interest income, this equates to $4.5Trillion in monetized debt. Their balance sheet shows nothing approaching this amount. Where did they ‘earn it’? Did $1T of backstopped debt appreciate in value, as in mark to make believe?

    If anything, this amount of ‘earnings’ proves the need to have a Fed audit. To generate his amount of ‘earnings’ the entire fabric of society have to be would be built on smoke, mirrors, and the printing press.

    PS, you can’t earn money by taking cash out of the desk and putting it in your pocket. Especially when the cash in the desk was freshly printed.

    But no, the stock market isn’t a pumped up fraud. That part of the economy is real. Just ask you commission compensated account manager.

  2. The numbers are good news for the federal budget and a sign that the Fed has been successful, at least so far, in protecting taxpayers as it intervenes in the economy

    uhhh, but where did the money come from wapo? From the fruits of financial alchemy?

  3. call me ahab says:

    wow-

    as if this means anything-

    might as well be an infant babbling gibberish-

    lets see them mark their assets to market value-

    then where are we- bankrupt?

    ponzi of ponzis

  4. beaufou says:

    So, treasury pays the fed interests and the fed returns its earnings from those interests to the treasury.
    Where did the 1.3 trillion for new asset allocation come from?

  5. call me ahab says:

    “JPMorgan’s Dimon Defends Bank’s Pay Policy”

    http://www.cnbc.com/id/34818846

    “JPMorgan Chase Chief Executive Jamie Dimon defended the bank’s pay policies on Monday and said he was “tired” of his employees being vilified over bonuses.”

    now here is somebody who clearly is out of touch

  6. Steve Barry says:

    The Fed is supposed to issue currency, or in our case, create electronic debt. Why they should have a P/L is beyond me.

  7. newulm55 says:

    Hahahaha… this is a joke right? The fed prints $$$$s out of thin air then claims its has earning on the “investments” it makes w/ new $$$$. Do these earning also include the return on futures it purchased to pomp up the stock market since last march… oh wait we don’t know b/c the bill to audit the fed is still waiting to be passed. After news like this maybe gold and silver are undervalued????

  8. b_thunder says:

    In his “How To Make The World’s Easiest $1 Billion” article, Henry Blodget lays out a strategy:

    STEP 1: Form a bank.
    STEP 2: Round up a bunch of unemployed friends to be “bankers.”
    STEP 3: Raise $1 billion of equity. (This is the only tricky step. And it’s not that tricky. See below.*)
    STEP 4: Borrow $9 billion from the Fed at an annual cost of 0.25%.
    STEP 5: Buy $10 billion of 30-year Treasuries paying 4.45%
    STEP 6: Sit back and watch the cash flow in.

    The Fed has similar, but more efficient way of “making profits” – print, rather than borrow, buy treasuries, and “profit.”
    Does it even qualify as “paper profit?”

    ( The rest of “How to make a billion: is here: http://www.businessinsider.com/henry-blodget-how-to-make-the-worlds-easiest-10-billion-2009-12 )

  9. call me ahab says:

    so . . .it appears the likes of Dimon just do not understand-

    “Kill Wall Street Bonuses or Tax ‘em to Death, MIT’s Simon Johnson Says”

    http://finance.yahoo.com/tech-ticker/kill-wall-street-bonuses-or-tax-'em-to-death-mit's-simon-johnson-says-402210.html;_ylt=

    “At issue is what level of bonuses are appropriate for publicly traded firms that posted record profits in 2009 thanks to the government’s largess and after being rescued in 2008.”

    . . .but no . . .that’s clearly forgotten- they are all now geniuses again- deserving of every penny they earned- bankrolled by and guaranteed by the USG-

    thankless parasites

  10. Mike in Nola says:

    Illustrates the diff between cash flow and the balance sheets. If the Fed is so profitable, let’s see an audit using market value… I thought not.

  11. Steve Barry says:

    According to Liesman, they got interest off all that toxic crap they took in. Hey, give me all that toxic crap…some of it is going to pay off and I’ll worry about my balance sheet later…what is the risk-adjusted return? And what is the true market value of this crap?

  12. rktbrkr says:

    Is there any reason not to audit the Fed – aside from the results? Is it a matter of national security and too destabilizing for the markets like Gentle Ben argued when the Fed refused to comply with the FOIL law? What happened to O’B's promise of transparency?

  13. rktbrkr says:

    Does anybody think the O’B proposal of special taxes for financial institutions to pay for the bailouts is anything but populist posturing? The Congress must be kicking their heels in glee anticipating the waves of lobbyist goodies coming to head off the tax.

  14. Steve Barry says:

    China raising reserve requirements…Argentina in crisis over their central bank…Venezuela devaluing currency 50%…all in the last few days.

    Rude reminders that this global experiment may blow up at anytime. BR, you ready to flip bearish yet?

  15. call me ahab says:

    SB-

    dude- don’t you understand- Bernanke has put the psycho Manson stare on BR-

    so Barry no longer has questions about the Fed policies effect on the country as a whole-

    irrelevant- he is rolling around in the money the Fed has provided to those who are true believers- and he is happy

  16. Steve Barry says:

    @Call me ahab

    The problem with waiting to flip bearish is that with Nasdaq bulls at 90% or so, what happens if they all were to flip at once?

  17. tradeking13 says:

    How did their prop trading desk do?

  18. cognos says:

    The “toxic crap” has just had the best 3 month period… and over the course of the last year, HY and mortgage credit bonds are UP 50-150%. Do you guys follow markets at all?

    Typically, the Fed does not “buy” toxic crap but simply “finances” it at favorable rates and haircuts. This helps liquify large institutional players (no cash flow problems) but does not change the basic equity owner. Thus the Fed prints money (or creates earnings) because it funds at 0% and yet charges some funding rate on all financing transactions.

    This $45B in not that big of a number and I think the Fed also has returned 20-50B in most of the last few years… so it is only slightly bigger. I would guess the MBS purchase program is a big source of earnings… with MBS passthrough pools, the coupon is 5-5.50% and the duration is not actually that long bc mortgages pre-pay, refi, and pay down. So all the Feds “asset purchases” in the MBS space have been good earnings drivers.

    The fear-mongering is silly. I think Bernanke said a few weeks ago, that not only were they solidly profitable across the entire balance sheet. He said something like — “almost no separate pools of assets look like they will lose money”. Remember, credit assets earn a spread (20% on credit cards)… you have to have losses larger than the spread, over time, in order to have net losses. That’s how “credit” works. The 9-year of extra interest typically more that make up for the 1-yr of losses.

  19. Steve Barry says:

    @cognos:

    Are you saying that stuff is not toxic? Why did it almost bring down the financial system? Was that a lie? I don’t care what some morons bid it up to. Santelli just reported 13% of all mortgages late or in foeclosure.

  20. call me ahab says:

    cognos-

    so . . .then where’s the issue on the Fed audit- all good now- let’s just a peek and confirm everything is nice and tidy and in order-

    the way I understand it- and I am sure you will correct me if I’m wrong- the Fed takes the unmarketable securities in exchange for newly created currency-

    if these securities are now all the rage- give them back to the banks in exchange for $$$- let them mark to market- then everyone’s happy-

    right?

    hmmm . . .but that probably won’t happen will it?

    gee . . .I wish I was as smart as you.

  21. Mannwich says:

    This sounds like the same way the banks calculate their “profit” as well. Hurray! Extend and pretend uber alles.

  22. Rikky says:

    >>Typically, the Fed does not “buy” toxic crap but simply “finances” it at favorable rates and haircuts.

    its all conjecture right now. unless there’s an audit we have no idea what games they’re playing under the covers.

  23. Greg0658 says:

    possession is 9/10ths of the law (under law&order) .. without law&order by the time you get it back .. well (thats a deep subject .. sometimes wet sometimes dry)

  24. rktbrkr says:

    “The best weapon of a dictatorship is secrecy; the best weapon of a democracy is openness.” Edvard Teller

  25. snati says:

    According to the New York Fed Web Site, “member banks” *(Citi, Goldman, etc.) get 6% dividend from the Fed. Someone should do a story on this theft.

  26. Brendan says:

    @cognos: thanks for being a sane voice amongst the rest of the mouth-foaming crowd. The comments in this place are starting to sound like a joint Birther & WTC Conspiracy conference. These people apparently need to lay off the Disney movies where everyone is either a hero or a villain. You would think that you could only walk around holding the “world is about to end” sign for so many years before you realize that when you started, you were wrong; “about to” has long passed and the world still hasn’t ended.

    Keep following Ron Paul to the promised land my sheep. And when you find out that the Fed audit really doesn’t tell you much, I’m sure Saint Ron will find a new villain for you, because surely it’s not a problem with your anti-fed religion. There are of course much bigger structural problems than the fed, but they’re complicated and require compromise, nuanced thought and an understanding of macroeconomics beyond “government bad!” So let’s just blame everything on the fed, that’s much easier.

  27. Mannwich says:

    @Brendan: Nice straw man.

  28. I’m feeling Mark Twainish today(It is a good day for me, I’m actually out ‘in front’ of the gold market in my trades. By in front I mean that sweet spot where no matter what my position does at this point I can make it more profitable. So that is good to celebrate) :

    STEP 1: Form a bank.

    Ahhh, this seems like the easiest part but there is one more little tweak you have to add to that that makes all the difference in the world:

    STEP 1: Get permission to form a bank.

    Until you do that you are cash rich like Branson, and he is bank poor like the rest of us. (correction: just did some research in Branson and found out they finally let him into the ‘club’)

    I think the only thing tougher to do than buy a bank is buy a hockey franchise ;)

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    And what is the true market value of this cr*p?

    Forgive me for this but:

    Hmmmm, would that be their market cr*p?

    I couldn’t resist that :)

    ~~~~~~~~~~~~~~~~~~~~~~~~~

    It is very easy to make a profit when the paper you are accepting can be rolled up and used to light reserve banker cigars if push came to shove.

    The Fed is where bad paper can go to die. A veritable elephant credit graveyard. When you are looking at it from that perspective it is rather easy for them to take on high interest risk and collect junk grade interest from it. They were eating all the risky, junk grade toxic assets (all the way down to bicycle loans?). If the entities default, the fed can sell those residual tangible assets to the highest bidder at GS and then go have a cigar

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Does anybody think the O’B proposal of special taxes for financial institutions to pay for the bailouts is anything but populist posturing?

    I don’t think you need to ask yourself if it is populist posturing. I think you need to as yourself if it is going to work. If it works it will be popular and he will have won the political game he is playing (at least on that topic)

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Typically, the Fed does not “buy” toxic crap but simply “finances” it at favorable rates and haircuts.

    That point is moot because they were securing the loans. It doesn’t matter who is living in the house, or where the asset is located if Uncle Stupid has secured the loan with his signature as backup

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    This $45B in not that big of a number and I think the Fed also has returned 20-50B in most of the last few years… so it is only slightly bigger.

    So you are saying the Fed, whose job is to level the playing field is actually competing in the marketplace? Not only that but they can always print themselves out of trouble. Something their competitors don’t have the option to do

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    @Mannwhich

    @Brendan: Nice straw man.

    When all else fails, ad the hominem ;)

  29. call me ahab says:

    so . . . uh . . .Brendan- what’s your position at the Fed?

    low level employee I imagine

  30. Mannwich says:

    I find it rather humorous that because many of us are critical of the Fed that we are somehow all “Ron Paul acolytes” or something. For the record, I’ve always voted Democrat and have never been a Ron Paul supporter. Of course, I’m now at the point of swearing off voting for the foreseeable future (or just continually voting against the incumbent, whomever it is, or merely writing in my dog’s name)…..

    Stop waving political right-wing flags and foam fingers. It’s not about that for many of us, especially here at TBP. It’s about non-ideological, critical thinking. Got it?

  31. rktbrkr says:

    I still haven’t heard why the Fed shouldn’t be audited. Once they are audited and comply with the FOIL law then we can deal with the facts and prove/diprove the grassy knoll group

  32. JustinTheSkeptic says:

    Let’s face it “mark to market” would have tanked everything. So now we can sit and talk about bank profits??? Not only children who get to live in a fantasyland. Reality is whatever those in power want it to be!

  33. The Curmudgeon says:

    I just stole this from hacking into Ben and Timmy’s iPhone connection:

    The Fed’s Income Statement:

    Sales $45,004,500,000

    CGS $4,500,000 (paper, ink, presses and pixels)
    ———————————————————————————
    Profit $45,000,000,000

  34. constantnormal says:

    not wanting to start anything (but it’s clear that it’s far too late to worry about THAT), but would anyone pay this much attention to corporation XYZ’s “unaudited” earnings report?

    I just wonder what their balance sheet looks like, earnings notwithstanding.

    Oh … I’m not allowed to look at that?

  35. cognos says:

    Hi. Thanks for the comments. I think I have a few points that can continue to be helpful:

    1. Remember most of the Fed’s activity is “financing”. So it can liquify toxic positions, mortgages, treasury bonds… simply by being willing to repo them for some haircut. Think of this as a margin transaction. So the bank could post collaterall (loan assets, plus some haircut… say 1-10%) and then the Fed provides cash liquidty. This expands the Fed’s balance sheet, earns the Fed some interest spread on that cash, which YES, they print for 0%. And adds liquidity to the overall system. Typically the equity risk exposure is still at some large bank… but as long as that position does not go belly up in the end, everyone makes out fine. And it turns out these positions rarely are “going belly up” they are simply being priced to yield “15%” … that is they will now make 15% as they mature. So thats easy money for banks, the Fed, or anyone willing to take risk. Are you?

    2. MARK-TO-MARKET… it turns out this is really stupid for banking and illiquid assets. Remember 1-yr ago the m-t-m price on all these HY, mortgage and credit bonds was 10, 20, 30 cents on the dollar. Most are 50-90 cents on the dollar today. WAS THAT HELPFUL? Why do you want to yo-yo bank earnings?

    I can make a simple analogy for how/why this is really stupid. Imagine the “home mortgage” transaction was M-T-M. So you bought a house in 2005 for $1M and you put $200k down. Then in Nov 2008 the bank came to you and said… “you need to post $200k more, or your bankrupt!”. You say — “but we are current on all payments.”

    That is exactly the M-T-M distinction for banks and illiquid assets. They can make all cash-flow payments… incoming interest spread is > losses and expenses. But if “market price” says they are underwater they need to have more equity. Dumbest thing ever. Classic govt BS. And of course, we are seeing the results… which is a huge Yo-Yo. Now Paulson is long C, BAC because he knows mark-ups will drive sky-high EPS as soon as credit cycle losses stop.

    3. All that said… these mistakes are over. Everyone should be focusing on the recovery, “binding up the nations wounds”, and building something going forward. The tax system… seems to already account for large bonuses with high tax rates. If it doesnt, some minor tweaking should fix that (cap gains should probably be 20% to flatten out the structure, FICA should be 3% on all income instead of 6% up to 100k). But if we could all just get over the banking story and get back to more important things: eduction, science and tech research, global growth eradicating poverty, energy conversation and energy tech, improving the quality while lowering the cost of healthcare. We have all the tools to make the world (and the US) a better place and “auditing the Fed” or “worrying about GS taking over the world” is not really one of them. Heck, I it seems clear the Fed is far better run than Congress.

    If I were you individual investors… I would be preparing for an good upswing in the business cycle. Time to capitalize.

  36. The Curmudgeon says:

    “But if we could all just get over the banking story and get back to more important things: eduction, science and tech research, global growth eradicating poverty, energy conversation and energy tech, improving the quality while lowering the cost of healthcare. We have all the tools to make the world (and the US) a better place and “auditing the Fed” or “worrying about GS taking over the world” is not really one of them. Heck, I it seems clear the Fed is far better run than Congress.”

    ~Franklin 411, did you change your handle?

  37. call me ahab says:

    so cognos-

    what is it- mark to market in good times- why not- assets are increasing in value and then in bad times-

    mark to model?

    is there something wrong with that picture at all? Seems mark to market worked fine- until . . .well you know . . .all the bull shit projections on how these securities should perform went up in flames-

    explain that to me genius

  38. cognos says:

    C’mon ahab, too easy.

    FASB 157 became effective ONLY for fiscal years beginning AFTER Nov 15, 2007.

    Wikipedia: http://en.wikipedia.org/wiki/Mark-to-market_accounting

    We had “fair-value-accounting” and “accrual accouting” for decades…. we had M-T-M accounting for roughly 1 YEAR! What a silly, silly thing.

  39. clawback says:

    cognos,

    A couple of things. First, the MBS purchases are just that — purchases (not repos, not loans of any sort). Regardless of whether these go bad or not (in terms of monetary policy, the interest payments going to the Fed are just a formality), the real issue is how to get rid of them. 1.25 T or so has been added to the money supply. At some point, say in the recovery you predict, that money will be inflationary. The Fed could sell some of these in order to mop of the excess “liquidity”, but will they be able to do it? At what point? And at what cost in terms of mortgage rates, etc.? There’s nothing “silly” about these concerns. “Silly” is saying this is no concern at all.

    Second, your M2M analogy is lacking. Maybe you worked for Lehman or something, but M2M’s effects on banks is nothing at all like having a mortgage. The only way for this analogy to work is if the borrower had liabilities that were some multiple of the value of his mortgage. M2M may or may not make perfect sense, but using it as a basis for capital requirements at banks is not “stupid.” If the rules are properly tweaked, one could argue that bank assets should, in fact, be marked to market. Capital requirements and the accounting rules governing them exist for a reason — to ensure soundness and safety. If the bank can’t sell its assets at a price high enough to meet its obligations, then in one sense it needs more capital — it doesn’t matter that Tim Geithner thinks the banks assets are undervalued, or that there is some kind of market failure at work. It won’t cchange the reality that the bank will not be able to sell those assets (or use them for collateral) at a price that enables it to meet its obligations.

  40. cognos says:

    Your derogatory comment on “mark-to-model” basically refers to overly complex stuff that banks had, thought their was no risk on, yet was “toxic” and ended up losing alot of money. No question, we had housing speculation and a real estate market which could “never go down” … (sound familiar)… and that turned out to be un-true resulting in large losses.

    Nothing emotional about this. Speculation has its ups and downs. Risk has its profits and losses. People are not always right… and actually are typically very wrong as a herd. Lots of jobs were lost (more should prob be lost) and lots of fortunes were lost, especially at the worst offenders — BSC, LEH, FNM, FRE, AIG. But the TARP is mostly paid back. Could actually be profitable and the crisis is past.

    Looking back, its too bad we didnt have more consumer protections (would’ve protected banks too!) and a bit smarter/stronger regulator who demanded more down payment on spec mortages. More downpayment is the simple, correct fix. (Not regulating compensation, products, even exotic MBS… just downpayment security).

  41. clawback says:

    One more point about mark to market. The whole idea was to incorporate into valuations the default risk of the underlying asset. Some of the arguments agaisnt mark-to-mrket cite the wild gyrations in asset values and how this unfairly penalizes some institutions. However, ignoring this risk through the use of mark-to-model or pre-FAS 157 fair-value accounting doesn’t make the risk go away. Say all of your bank’s regulatory capital is in AIG debt (this is totally hypothetical). Then say AIG gets downgraded by Moody’s or whoever. Now, you could argue that this is BS and that you’re still getting paid on the bonds, so what’s to worry about. On the other hand, you could also argue that the credit rating downgrade reflects real risk that should be accounted for and/or addressed by raising more capital or reducing leverage. There are many nuanced positions one could take in regards to FAS 157 in particular, but those rules were meant to address precisely the types of risk that led to the panic of ’08. Unfortunately, Geithner and Paulson and Bernanke and Kashkari, et al. were not pro-active at all in dealing with the problems. They could have forced institutions to reduce leverage, raise capital and cash, wind down positions, etc. but they didn’t.

    And remember (in case you didn’t know already), these guys “knew” by the beginning of 2008 that they would need to go to Congress and ask for a big ass bailout. That’s right, they “knew.” So says Kashkari in his Charlie Rose interview. This is corroborated by Philip Schwagel’s account of his own time at Treasury. They knew, but also decided that they would have to wait for a real panic before they could convince the financial illiterates in Congress to fork over the cash. Why they took almost no action whatsoever between Jan. 2008 and September is beyond me. All they did was get in front of the cameras and lie about how great and “sound” everything was. I honestly don’t know which of these guys are dumbasses and which are liars. It really is hard to tell sometimes, but they either screwed up MASSIVELY, or they don’t really understand who they were supposed to be working for.

  42. clawback says:

    cognos,

    Why in the world are you tooting the TARP payback horn? “We” aren’t going to make anything off of TARP and certainly not all of it will be paid back. The c.65B (I forget the exact figure) that went straight from AIG FP to GS, UBS, et al. will almost certainly NEVER be paid back. That’s AIG’s liability, not Goldman’s, SocGen’s… (wink wink, nudge nudge). Ditto on most of the TARP used for the autos. Furthermore, as TARP is paid back, the cap on Fannie and Freddie obligations have just been lifted. This is just a shell game — let them pay back TARP, but them support their balance sheets at taxpayer expense through the GSE’s.

    Finally, instead of allowing the big banks to be seized, chopped up and the debt destroyed/restructured, we’re keeping the zombies alive. This can only hurt the real economy, not help. (And yes, it is possible to pull the plug on Citi. The bureaucrats just don’t have the balls to do it.)

  43. cognos says:

    Clawback — Your not corrrect on this.

    You state — “but M2M’s effects on banks is nothing at all like having a mortgage. The only way for this analogy to work is if the borrower had liabilities that were some multiple of the value of his mortgage”

    NO. The borrower IS LEVERED at 5-to-1. What matter is the “equity” value. Banks have “equity”… the borrower has “equity”. What MTM says, is that when illiquid assets (loans) go down, they need to be marked/impaired. If I “mark” your mortgage and it turns out you have zero equity… this is exactly what the FDIC does to failed banks in many cases.

    Again, I think you’re wrong on TARP. I think your overstating losses that will happen in time (remember how last year the TARP was going to cost us $700B… nows its $140… it actually already looks like $70B… and in 1 yr it could be less). Its funny how obviously cyclical these things are… remember in 2000 we had surpluses for the next decade… now we have $1T deficits for the next decade. That is obviously just silly. Take a step and a deep breath.

    Were there problems and bad judgement, bad management. YES! So what? That is life. Its not perfect. Move on.

  44. cognos says:

    The AIG/Goldman thing is dumb, dumb, dumb.

    AIG was bankrupt. They owed Goldman and every other counter party that money based on signed contracts. AIG is a highly regulated entity, which means the mgmt failed but so did the regulators.

    The Federal Regulators did not want an AIG that was bankrupt in the crisis… so they chose to lend them all the money to pay their contracts and they wiped out the equity. This IS the only choice. You cannot NOT PAY ME, and NOT BE BANKRUPT. The Feds chose to play the role of “white knight” in exchange for stability and the equity in AIG. This actually looks fine. The Feds will do fine on loans to AIG.

    Fannie and Freddie are where the real losses are… but Fannie and Freddie were setup and mismanged by the US govt. Thats life, we had bad politicians making bad decisions and its going to cost us $100-200B. So what? The Iraq war cost us $1T+. We prob have $200B in govt waste EVERY YEAR. Seems silly to blather on about AIG, Fannie and Freddie losses… once every 20 years.

    Remember the “Homeland Security Act” and all that funding for counter-terrorism in Memphis, TN. The Govt wastes money… how is this news?

  45. Greg0658 says:

    “its going to cost us $100-200B. So what” .. huh huh .. do you work for a living or just push bull around for $s ….
    “huh huh” that was Bear speak not Bull “grrrr”

  46. call me ahab says:

    OMG-

    Cognos- rule 157- so what?- when you’re leveraged out the ass and getting margin calls and can’t roll your short term financing to support your long term plays- then who really gives a shit-

    you don’t change valuation of assets mid-stream- MBS’s were never “hold to maturity” type instruments- so your analysis ends up being a “straw man” blaming “mark to market” not the irresponsible people who leveraged up to create, market and sell MBS as AAA assets-

    what bank do you work for- sheeeeeesh- give it up already

  47. cognos says:

    @Greg – The POINT is that LOTS of other things waste $100-200B from the US taxpayer… some things far more than that. I now have heard screaming at bankers for 2-2.5 years. I see ZERO care about medicare fraud ($50-100B per year)… I see ZERO care about actually RATIONING healthcare, which would save us prob $100-300B per year… with better health outcomes.

    But hey, BANKERS!, lets get ‘em! Its non-sense and when people talk about it without knowing anything and bank balance sheets, mortgages, traded product, accounting… its the kinda thing that gets you communism. Bad idea.

    I have illuminated some of the mistakes bankers made. I think they continue to make mistakes. But they did pay alot for their errors (BSC, LEH, AIG are all zero)… and citizen speculators also made mistakes. Everyone I know was buying condos in Miami, bigger homes, and cashing out mortgage credit. Turns out mass speculation causes bubbles… wow, novel.