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Fed Balance Sheet Hits New Record On Major MBS Purchases Over Past Month
Total Federal Reserve balance sheet assets for the week of January 13 hit a new all time record high of $2,226 billion ($37 billion higher compared to the prior month, and a $11 billion increase sequentially). Fed assets consisted of:
- Securities
held outright: $1,856 billion (an increase of $49 billion MoM,
resulting from a $45 billion increase in MBS and $4 billion in Agency Debt),
or a $11 billion increase sequentially. - Net borrowings: $165 billion. This is notable as it is the first sequential increase since the peak of the financial crisis. A fortnight ago this number was at $163 billion. Also notable among other H.3 data is that the monetary base declined by $62 billion to $1.95 trillion sequentially,
- Float,
liquidity swaps, Maiden Lane and other assets: $205
billion,
a minor increased from the prior week, based on a flat CPFF, a $2
billion reduction in FX liquidity swaps,
offset by an increase in "other assets" of $2.5 billion. A notable addition here is the brand new column of AIA Aurora and ALICO Holdings, the Fed's brand new AIG assistance program, which has maxed out at $25.1 billion.
Foreign holders were at $2,951 billion, a $11 billion decrease from the prior week. Hello "Direct Bidder"?
Currency in circulation was $923 billion, with a total of $1,950
billion in the monetary base and $1,027 billion in excess reserves with
F.R. banks (a number that dropped by $85 billion in the past month). Indicatively there was
$1,080 billion in MBS and Agencies on the Fed's balance sheet, implying
the currency/MBS holdings coverage sunk to a new record low of 85.5%.
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Is this a story of how far the Rabbit hole goes?
all the way to China
Apparently, self interest...
Wonder what we had to promise...
Some of the fringe conspiracy sites recently started claiming we've granted China eminent domain power within the US. I dismiss them as loons, but the timing is certainly interesting.
is everything upside down when you come out the other side?
(just like on bugs bunny)
We've gone past China. We're operating in a parallel universe.
Reverse repos were down substantially, by about 16.4%. I suppose the resale component is kicking in. Interestingly, the repos were done with "Foreign official and international accounts"; that says currency massaging is taking place too. Maybe the reason why the U.S. dollar has hit the skids this week is because the Fed is unwinding reverse repos with the furriners.
One further note: I saw that "Reserve balances with Federal Reserve Banks" was up, to $1.132 trillion as of yesterday, while "Reserves of depository institutions" [according to H.3] was down to $1.067 trillion. I'm a relative naif, I know, but it struck me as a little odd. The monetary base has been shrinking since Dec. 2nd.
$14B more TBAs bought this week, in the face of almost no locks, that has to be equal to every TBA available.
http://www.newyorkfed.org/markets/mbs/
and oh, look, almost all Fannie/Freddie, barely any Ginnies.
If it was all Ginnies (i.e. Fannie/freddie were rolled into the FHA) we wouldn't need the Fed to print money to buy, there would be real buyers of full faith and credit paper.
It has been documented that China has been swapping out their GSE MBS holdings for treasuries...for almost two years now...this is officially reported and widely known.
The Fed has accomodated this swap by purchasing the GSE securities-that's what the "quantitative easing" has been about from the beginning.
yup, the Chinese have been swapping MBS for short term bills.
I found it funny how up in arms people were about the Fed buying USTs, that was a small sideshow.
yep!
obama's bank fee thing today right up that alley...."we want all of that back, 90 billion worth".
if only it was only 90 billion......
Could someone please explain why we are rescuing China and the other purchases of GSE debt? Could we not simply have exported the losses in the housing market to the foreign banks that purchased Fannie and Freddie Mae debt? It was, after all, not guaranteed by the government.
This would have protected the Treasury and Fed budgets from being overwhelmed and left China and the Europeans needing a feeling the pain.
Cuz they would have stopped sending us cheap crap that fills the shelves at Walmart and they would started to shoot missles at us.
Because that would have burnt to the ground, the housing market which the FED and Treasury have been trying to re-inflate since this all began. If the FED didn't buy the MBS from China, and everyone else (who else is a buyer?), then mortgage rates would have went up, dragging everything else with the housing component of the economy into the toilet.
100% correct - the game has been to swap out non-US guaranteed debt for the "good stuff". The FR Tick will continue to bloat.
The Fed has a leverage ratio of 44:1, which is either insane, or else reflects their ace in the hole of being able to print money.
Of the Treasuries the Fed holds, $350 billion are 5 years or higher in maturity. Of the MBS, ALL are (as one would expect) longer than 10 years, which makes the portfolio extra sensitive to rate moves.
Even if the Fed paid close to the current market for all of these instruments (dubious given Goldman's profits), a very small uptick in rates will wipe out all of their capital. Indeed,if the Fed tries to drain liquidity by trying to sell some of these positions, that fact alone will drive rates higher and decimate the portfolio relative to the capital base.
A bond vigilante can do the numbers better than me, but assuming the duration of the portfolio is about 10 years (which may be fair because so much is long term MBS'), and guessing at the average coupon rate, then a mere 30 basis point move in rates will wipe out the Fed's capital.
That's why I think there are alot of people at the fed who have very clean bowels most of the time. Per capita use of toilet paper at the fed is probably very high. Look at Uncle Ben when he pokes his head out from under his desk. He doesn't look like a deer in the headlights, he looks like a deer that's been hit by the headlights.
How do we know these figures are accurate? I mean how do we know whether the Fed's balance sheets assets are $2226 billion or $4446 billion? WE DON'T.
true. they have never been audited. but we can take their word for it can't we? i mean, these men have proven they are honorable men, is that not correct? ha ha...
This is absolutely correct.
The only way to determine the truth of any organization or individual is a comprehensive audit. period. absent an audit, a person is a complete phucking idiot to rely on any numbers presented by any unaudited party.
i believe that the Fed is the only organization in America that is outside of the checks and balances model of our structural law.
how fucking stupid is that.
DH - it has occurred to me lately that the FR is the 4th branch of government, the one the Founding Fathers forgot to put in that "Constitution thingie" so the bankers created it after the fact. It is untouchable however, and polotically responsive only to the elites. Kind of like a second Senate, if you will, or better yet a House of Lords. Or Star Chamber.
yes, Ned.
I'm still amazed that the congress of the US is so disconnected from the structural law of this land when it comes to the Fed. yes, i know that the reason for this is that the Fed complex owns them, but it is still remarkable that so few in the legislative branch avoid this fundamental matter.
there is no check, balance on the Fed and it is an egregious error by the US Congress.
Idiot question.
Does the Fed buy these MBS at face value ?
nobody knows for sure cuz there is no audit.
i suspect most folks would say that the Fed is buying at close to par.
Depends on what you mean by that.
They buy them in the open market. But they are 70% of the market, so basically they set the price.
And they are setting the price way above what any other investor would pay.
thanks ghost, well said.
So how does this fit into this?
Moody’s Projects Losses of Almost Half of Original Balance from 2007 Subprime Mortgage Securities
http://seekingalpha.com/article/182556-moodys-projects-losses-of-almost-half-of-original-balance-from-2007-subprime-mortgage-securities?source=article_lb_articles
It doesn't fit into the agency MBS they own, per se, except to the extent the taxpayers will take some loss on their "investment" in Fannie/Freddie, see the article below this one, it gives a decent estimate on the losses in the gse portfolios, of which they will be on the hook for a good $250B.
What is does call into question though is the value of those Maiden Lane transactions (Bear Stearns + AIG). It makes a mockery of the Fed's claim that they don't take credit risk. As TD points out, they know own equity in AIG subs, how is that legal? And the subprime MBS they took as part of the Bear Stearns bailout will be paying losses. Gee, I thought that was the definition of credit risk.
my guess is that the Fed's position is that is "legal" under their emergency powers. to show otherwise would require about 3 centuries of litigation and my guess is that if it ever made it to the supremes, they would rule in favor of the Fed as "emergency powers" has pretty darn broad leeway.
and, if the supremes ruled against them for some reason, there is no "or else" type of punishment.
the Fed wins on its agend either way.
It would have been much more efficient and simpler if the Fed simply called up Wall St, Banks and any other connected "under capitalized" business - and said "Go ahead and add 0's to whatever you got and we will call it good"...
I can not get my mind around this Disney World of what we are calling finance.
The Fed balance sheet is only for settled transactions. Add another $120 Billion for "committment to buy" MBS
This nonsense will go on longer than most will expect, until it doesn't. We'll then look back in hindsight and wonder how in the hell we let it go so far for so long. History books will note that at the time no one thought that they were witnessing the end.
Check out this information at http://johngaltfla.com/
Over $300 Billion in Alt-A RMBS Face Downgrade
Every dime of the $2.26 Trillion on the Feds balance sheet is a dime that has been guaranteed by you to be paid by via inflation or taxes and has gone to the major shareholders of the banks that own the Fed for worthless garbage... 2000 freinds of Bernanke are likely now $1 billion richer because of thei fraud/scam/heist/Ponzi Sceme/looting/silent coup de etat
Folks
All this talk about the Fed leverage ratio, wiping out of their capital is absurd.
Ultimately the Fed prints money..is that clear?...It creates money out of nothing so it cannot go broke by definition....so until the confidence game goes on, until people and institutions are willing to accept these things called "dollars" created out of thin air by the Fed as "capital" it is all good..they can buy anything in sight, so far they are the market in UST and MBS.
When people do not accept dollars anymore it's over....then the non edible chocolate hit the fan....
I got some illiquid assets that I would like to swap for Treasuries. Anyone know a Goldman broker that can do this for me?
The good news is I'm massively leveraged on the short side. The bad news is when the market crashes and my position increases by billions and billions (okay, a little exagerated) I won't be able to enjoy my new wealth because there isn't any money to pay me off.
THE GOOD NEWS IS I'M MASSIVELY LEVERAGED ON THE SHORT SIDE.
I'd expect there being no problem with you getting paid. However the money you get might not be worth anything...