Comments on: The Fed’s earnings

By: bobbobwhite

bobbobwhite — Tue, 12 Jan 2010 17:38:41 +0000

Any talk at all about any Fed “profits” with the deficit at its higher-than-heaven-ever-was level is just too ludicrous to fathom. Only our pathetic gov’t would essentially brag, “Hey, we are big losers(for you)in almost everything we have done in this economic crisis, but here is one (puny)example of a (manufactured)profit we made for you(that is not even real; don’t ask for details). How about them apples, Bubba? Whoo-Hoo”

By: alea

alea — Tue, 12 Jan 2010 16:45:45 +0000

so “profits” should be better called “fake alpha.”

By: alea

alea — Tue, 12 Jan 2010 16:45:07 +0000

yes,it is. if the fed had to mark to market like a commercial bank, it would have been toast long ago, but it’s a central bank, different rules apply and they make them.
they can still recognize losses, of course, but you know who pays for that. for ex, almost half of the portfolio are mbs guaranteed by fannie/freddie themselves guaranteed by you know who.

By: KidDynamite

KidDynamite — Tue, 12 Jan 2010 16:12:54 +0000

thanks Alea – that’s even sillier though, isn’t it? if they want to make more money, all they have to do it print more money (zero cost) and buy more stuff (positive yield)…

and although they don’t mark to market, they can still recognize losses if and when they eventually sell the assets they bought.

By: alea

alea — Tue, 12 Jan 2010 15:01:33 +0000

KD: the Fed doesn’t mark to market, profits are pure carry.

By: KidDynamite

KidDynamite — Tue, 12 Jan 2010 13:37:22 +0000

but Felix – what happens when the Fed stops its QE and MBS buying programs? said differently, this “$45B” in profits is a classic ponzi scheme – as long as the fed keeps buying the assets it already owns (marking prices favorably), it shows a profit… once it stops, look out.

in other words, if i were to buy a billion shares of MSFT, i’d almost certainly show a profit by the time i was done, as i’d move the stock higher and my average price would be lower… but when i’m done buying, and the stock trades back down….