I really have nothing much to add. You take control of stuff that's non-performing and at 20/100 and mark it to 100. I find that somewhat problematic. At least we shouldn't be using such terminology as "profit" to describe it.
US Fed delivers $79 bn boost to government http://news.yahoo.com/s/afp/20110322/pl_afp/usbankearnings i don't know nothing about Fed and how exactly US gvt is operates..but..i don't undestand this "model" at all..Fed bought bonds from US treasury,US treasury paid interest(read US taxpayer money) to the Fed. Fed reporting this as their "earnings" and return "profits" to the US govt. WFT that is? it's doesn't make any sense to me..it's like moving the money from one part of my wallet into another and then back. still same amount.. i'm missing something here? can anyone explain in plain English how US gvt and their own federal(it's branch or dept of the gvt,isnt?)operates?
Well, if private financial institutions, like money-mkt and pension funds, etc, are allowed to do this, I don't see why the Fed shouldn't be. There's a whole lot of literature on accrual vs mark-to-mkt accounting and I am sure you're familiar with it. So I trust I don't have to have offer arguments for why accrual accounting makes sense for an institution like the Fed? Furthermore, you're making an implicit assumption that 80 cents is the credit discount. I would suggest that, if you believe Uncle Sam to be money good, 80 cents is actually the liquidity discount, in which case marking the securities to par makes all the sense in the world. If, on the other hand, you believe Uncle Sam to be insolvent (i.e. Fannie/Freddie unable to pay coupons/redemptions), we shouldn't really be having this conversation, but rather stocking up on guns, ammo and canned soup.
Even if you assume it's a liq-discount, which I don't as non-performers shouldn't have a lot of natural buyers, why should that result in the reprehensible 100-mark? Yah, the cessation of MTM is an OOM larger fraud. It's what draws me into repeated outright shorts of the banks. Sorry Marty, I don't get the "what can you do?" canned food and shotgun analogy. I expect more from the motherless bastards than, "we had to do it".
If I could print up trillions of dollars to buy bonds any time I wanted I too could make $82 billion in profits. I'm not impressed.
What non-performers? This is agency MBS we're talking about, right? So Fannie, Freddie and a bit of Ginnie... Where do you get the non-performing, credit bit from? Where should the Fed mark the liabilities of the US Treasury, other than par? Sure, I can understand that... I am not a fan of using accrual accounting in a banking environment, since it's a very uneasy marriage. Neither do I actually like it done in a money mkt fund context, 'cause then you get a Leh-style sh1tshow. However, I do believe there's a place for it. Hold-to-maturity types like pension funds and insurers are natural users of accrual accounting and it makes sense. Basically, as long as there's no "liquidity gap", there's no problem. There's most certainly no such issues at the Fed, as there's unlimited liquidity, by definition.