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Accounting tweak could save Fed from losses

Discussion in 'Wall St. News' started by hippie, Jan 23, 2011.

1. hippie

(Reuters) - Concerns that the Federal Reserve could suffer losses on its massive bond holdings may have driven the central bank to adopt a little-noticed accounting change with huge implications: it makes insolvency much less likely.

http://www.reuters.com/article/idUSTRE70K6OK20110121

2. the1

The entire US monetary system is a fallacy created out of thin air. The "accounting change" isn't the least bit surprising. The fallacy must go on.

3. Bob111

businesses(too big to fail banks to be precise)do have same privileges...oh...i forgot..FED\big banks...it's same thing..they are the rulers of US.they can do whatever the fuck they want. rules?what rules?they can come up with their own and change them if necessary..
can i change my rules for my income and tax reporting? i'll be in a prison for life in a blink..what a country..

4. S2007S

All fucking games is all they know how to play!!! Its all one big joke is all it is.

5. Bob111

the sad part is that DC doesn't give a shit about it..

Q:What do politicians & diapers have in common?

A:They need to be changed regularly & for the same reason.

6. S2007S

Amazing how they can simply change their accounting methods and still let everyone believe everything is good. There is no such thing as failure anymore....................

"Could the Fed go broke? The answer to this question was 'Yes,' but is now 'No,'" said Raymond Stone, managing director at Stone & McCarthy in Princeton, New Jersey. "An accounting methodology change at the central bank will allow the Fed to incur losses, even substantial losses, without eroding its capital."

"Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible," said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer.

7. the1

The Fed currently holds about $5T of US debt on its balance sheet at a rate of let's say 4%. Assuming the Fed does actually return 95% of the interest they collect to the treasury they stand to make$10B from the US Taxpayer. $5T x .04 x .05 =$10B. It's probably even more than that. And to boot, no risk of failure. What a racket.

8. Martinghoul

Huh? If you want to make a particular point, it helps to have your facts straight. The Fed balance sheet, as of last week, stood at a total of $2.47trn and change. UST holdings don't constitute the entire amount, so I have to assume that$5trn figure is hyperbole.

As to Fed "profits", let's do this calculation using the information we have from last year. Last year the Fed made $80.9bn, of which$78.4bn was returned to the Treasury. This means that the Fed "kept" $2.5bn, which is arnd 3%. Now if we imagine for a moment that these are profits that accrue to some mythical private owners of the Fed, these investors surely must be total idiots to accept such piddly return on capital? Now you may choose to believe whatever theory makes you feel good, but I am pretty sure that the$2.5bn the Fed retained was, in fact, used to cover operating expenses. Actually, come to think of it, operating expenses of 3% of gross revenue is pretty impressive. Maybe the taxpayer should give Uncle Ben a nice performance bonus?

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