Fed ‘Profits’ Would Have Blown Ponzi Away

RickAckerman's picture


There was good news yesterday for taxpayers, sort of:  the Federal Reserve turned $76.9 billion in 2011 profits over to the U.S. Treasury.  The not so good news is that it amounts to a meager 2.6% return on the Fed’s $2.9 trillion  portfolio. That may be better than George Soros and John Paulson did last year, but at what risk? Keep in mind that quite a few of the paper “assets” the Fed holds are still radioactive, including a mountain of subprime mortgages that would fatally poison the U.S. banking system if they were returned to their rightful owners.  Not that we even know who the rightful owners are; for in legal fact, the securitization mania of the past decade cast doubt on the title to each and every mortgaged home in America.  Thanks to the Fed, however, our commercial banks needn’t worry about such things. That’s why they pay protection money to Bernanke, buying Treasury paper by the boatload so that everything gets taken care of.  And what does the Fed care if it’s holding trillions of dollars’ worth of dodgy paper for the banks? It could write a check for Fannie and Freddie and have enough left to over to own every bank in Europe.


Unfortunately, this is effectively what the Fed has been doing via “swap” arrangements with the European Central Bank. The agreement is formally called  a “temporary dollar liquidity swap arrangement,” but the actual mechanism, like laws and sausages, was not meant to be scrutinized. For if it were, it would make the most brazen Ponzi scheme look as squeaky clean as a Lutheran bake sale.  Actually, compared to today’s high-level paper shufflers, Ponzi was a sap, working long hours to raise real money from new clients to pay old ones. The post-modern central bank, on the other hand, would never trouble itself  to look for real money from real lenders. Not when the central banks can simply swap digital dollars with each other in unlimited quantities. And it’s not even called a loan. Americans might get upset if they thought the Fed was lending hundreds of billions of dollars to European banks. Instead, the swapped dollars go to the ECB (and the Japanese Central Bank), who can use it however they please. Mostly, this means giving it to multinational banks that have stopped lending to each other.


Epic Skimming Operation

For this favor the Fed charges 50 basis points — without calling it a…ahem…loan).  The revenues could start to add up, since swaps are running at about $10 billion per week and climbing. We predict that the Fed will find a way to offset income from swaps come January 2013, lest the ‘Nank be embarrassed by unseemly gains.  For, were such profits to leap above $100 billion, some curious congressman or reporter might ask where all that money came from.  Better to underperform the hedgies than to incur their envy and awaken the muckrakers.  For the Fed, this protection racket has been more lucrative than mere seignorage (the income derived from the difference between interest on securities and the cost of printing them).  It is in fact nothing less than a skimming operation whose potential is as big as the growing sums required to allay fears of a global banking collapse.

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ebworthen's picture

U.S. Treasury 10 year and German Bund bonds % down, down, down.

Everyone fleeing other European bonds, equities, etc.

But...when attention comes around to the U.S. and Germany (year? two?); those % will go up and it will not be pretty.

Dr. Gonzo's picture

Wow! They made a whole 2.6% of Monopoly money off the Monopoly game they rig and basicaly force the world to play with them as they change the rules of it constantly. If they ever loose their stupid rigged game they'l just take their monopoly money back from everyone so who cares? It's their monopoly money and I don't want or need a lot of it anyway. Now if they were talking about gold money then they'd have my attention.

tony bonn's picture

too bad the corrupt cunt eric holder doesn't press charges or the conflicted cunt mary schapiro....what a bunch of crooks.....

JailBank's picture

If the FED would just give all US citizens with a credit score above 400 $10 million loans at .05% we get really get this economy going again. It is simple math is all. Krugman says this will work no problem. First thing I would buy is a basement full of iPad2s so I know I will never be hungry.

JailBank's picture

If the FED would jsut give all US citizens with a creedit score above 400 $10 million loans at .05% we get really get this economy going again. It is simple math is all. Krugman says this will work no problem. First thing I would buy is a basement full of iPad2s so I know I will never be hungry.

the grateful unemployed's picture

silly gooses, the Fed is using the Treasurys money, its money from ourselves to ourselves. all we have to do is cut off their GSE status, and let them float their balance sheet on the kindness of strangers, rather than pulling the wool over the taxpayers eyes, its your money, wake up! elect ron paul

Clowns on Acid's picture

No worries...Ben BurnYankee is going to reflate the housing market and all those bad mortgages and CDOs will make a fortune for the Fed, and Krugman will say I told you so...(obviously before the Pres. election)

I mean what would you do if you had a $ printing press and a trillion $ worth of underwater mortgages?  

The banks (and DEM party hedge funds) have already received the "wink and the nod" from the Fed. They are buying up banks and homebuilders, the direct beneficiaries of the Fed housing policies.

Obama is not losing this election w/o really opening up the spending spigots...."A chicken in every pot"....or "a refi'd house for every chicken"?

indio007's picture

They're going to have to burn down every Register of Deeds in the country first. No one knows who owns what . You need an answer to who owns it before you can reinflate anything.

We do know that whatever it says at the Ye Old County Court House ain't it 

Clowns on Acid's picture

indio....I think you mised my point....the Feckless reserve Bank doesn't care if people get put out of houses or stays in them.

They want prices to go up! Thereby their "book" of mortagges and CDOs go up. Cash flow be damned, as long as prices are up...opeople will be able to refi easier as the Loan to Value (LTVs) ratios make it "possible" to refi at the lower rates.

It is diffcult to refi if the LTVs are shot.

donsluck's picture

It's an economic war between the Fed and the Counties, with the Counties supported by the Courts. The Fed will lose because they can't influence the thousands of Counties like they do the Supreme Court. It's a slow motion train wreck, and I can't figure out how I can profit. Any advice, anyone?

the grateful unemployed's picture

some people in my neighborhood (SoCa) are filing quit claim deeds against foreclosed property (unoccupied). they take possession, change the locks and rent the property before the banks or the agents knows what's going on. the county DA is "looking into it". as it looks from here the problem is that these short sale agents are often private individuals with minimum training, and no corporate authority, not even licenses real estate agents in some cases, with nothing at risk except their commission. by the time anyone figures out what happened their are new tenants in the building. (some of them are probably short sale agents who saw more money to be made pulling a fast one because no one at the bank is paying attention - banks are laying off people) although there is a company shell corporation which is doing this, its most likely a front for one or two enterprising individuals who have found a loophole and lax or nonexistent caretakes.


cranky-old-geezer's picture



It could write a check for Fannie and Freddie and have enough left to over to own every bank in Europe.

That's nothing.  Fed could write checks and buy up piece of financial paper in America:

  • All the Treasuries in existence, all $15 trillion, and buy $15 trillion more any time the federal government wants to issue them ...then buy $15 trillion more ...then $15 trillion more ...you get the the point.
  • Every single muni bond in America ...and any more any state, county, or city government want to issue in the future.
  • Every mortgage loan from Fannie & Freddie ... worthless or good, doesn't matter.
  • Every MBS in existence ...and any more any bank wants to isuue in the future.
  • Every single mortgage in America not securitized ...or securitized ...it doesn matter.  Fed could buy the original mortgage AND the MBS created from it.
  • Every stock on all the stock markets ...regardless of price ...worthless or otherwise.  Which means the Fed would own every publicly traded corporation in America ...even the bankrupt ones ...like MF Global ...and all the TBTF walking-dead zombie banks including Goldman Sucks and all the rest.
  • Every car loan in America ...and truck loan, and motorcycle loan, and 4-wheeler loan, and boat loan, and jet ski loan, and any other freikin kind of loan held by any friekin bank any friekin where.
  • Every credit card account and any other kind of unsecured loan.

What does all that add up to?  $200 trillion?  $300 trillion?  $500 trillion?

Who cares?  Doesn't matter what the total is.  Fed can print UNLIMITED amounts of dollars and buy it ALL up.

Fed's balance sheet could be $100 trillion or $1,000 trillion, it doesn't matter.

...weeeeeeeeelllllllllll actually it does matter ...not to the Fed ...they couldn't care less. 

It would matter to everybody else.  Because the US dollar would become worthless somewhere around the $100 trillion mark ...or maybe before then, like around the $50 trillion mark ...or $30 trillion mark ...or even $10 trillion mark.

That's the point.  Fed doesn't know when everybody would lose confidence in the US dollar and it would sink to ZERO ...maybe overnight even.

That's WHY the Fed tries to keep currency printing under control and keep its balance sheet small.

 ...except for those "little" things ...like that $200 billion of Euro currency swaps ...not to bail out American walking-dead zombie banks ...to bail out EU walking-dead zombie banks.

...but it's "technically" not expanding the money supply ...so it's ok to bail out EU walking-dead zombie banks.


moneymutt's picture

the FED does not have to worry about printing currency causing inflation as long as banks are constricting credit, loans are defaulting and banks have reserve/sovlency issues. Banks creat much more money than FED. The FED is printing to fill the banks black holes in the sand, so we dont trip and fall as we walk thru the economy, but dont print to build above grade, that would cause inflation and devalued currency. FEDs printing has only caused significant inflation in other countries.

But say, instead of printing money and giving it direct to banks to mitigate their losses, they instead printed and gave it every citizen, say by reducing taxes to zero, then people would spend more money or pay down debts, thereby making banks solvent. Instead, they print our money and use it to protect banks from ever going bankrupt and investors in banks ever losing a dime. 

Pactyas's picture

I don't know if this is the most accurate or the funniest thing I've read in a long time.  I guess both, if the world slipping on a banana peel is funny.

Seer's picture

In the past I half-joked that the plan is to have the Fed buy up all the junk and then self-destruct, with the US govt pleading that, to everyone's surprise, the Fed ISN'T PART of the US govt, therefore any debt mounted by the Fed are null and void.

It's all a black hole.  And the Fed is the center of it.

I'd also add that increasingly people will see all of these assets as pretty much worthless (horribly unsustainable).  As the Puppet Masters say, it's an issue of confidence; if people quit believing in the lie/dream/con the collapse can happen much faster than anyone here might think.

OldE_Ant's picture

It's not just the 'lie/dream/con'.  It's when real lives no longer live anything close to the dream.  I think this is the only way we fail is when enough people are living on the streets, their cars, starving or freezing to death.  This is a ways off without some external event triggering.

A person with nothing or less than nothing, has nothing to lose.  Think about if they are also terminally ill.   Hmm.  Headlines will start reading like this:  Terminally ill cancer patient kills top executives of Goldman, then kills himself.  The story will be a blah, blah, blah about how said person was a former Goldman employee, made lots of money, then was laid off, was divorced, foreclosed on, diagnosed with terminal Cancer.  In the letter he left said "I realized I had nothing to live for, and since I was going to die anyway I might as well take a few of the bastards that started it all with me!"



Raging Debate's picture

Half a joke isn't good enough. Speak full truth.

jomama's picture

that carrot on a stick (aka FICO score) keeps the sheeple believing and the music playing.

Hedgetard55's picture

If the FED just printed the money it would cut out the middle man and the skimming operations by the PDs. Can't have that.

Kayman's picture

Since there is no adjustment to the Feds ripe assets, income figures are pure conjuring.  Ben could write a check for $1 trillion to the Treasury, out of thin air, if he wanted.

Oh, he already has... sorry.

daxtonbrown's picture

The argument can be made that inflation through money printing is an efficient and egalitarian tax affecting everyone (rich and poor) without te need for the IRS. The problem is that the Federal Reserve is beholden to no one but itself and so gravitates towards taxing at a 100% rate. That would fit the definition of taxation without representation, and the result is that we are headed towards a Greek style implosion and eventual civil war.

The true taxation rate is federal expenditures divided by the GDP. Right now though you can't believe any of the numbers coming from the Ministry of Disinformation, the entire system is crooked. It reminds me of Las Vegas where I live and where the game still is very much mafia rigged.

The only way out for the little guy is to hunker down, buy gold and Go Galt. You can't live in a bunker, but you can take a substantial part of your activity off grid and still be legal. http://www.futurnamics.com/goinggalt.php

Lord Koos's picture

"The argument can be made that inflation through money printing is an efficient and egalitarian tax affecting everyone (rich and poor) without the need for the IRS."

That argument would be bullshit, since the wealthy can keep a higher percentage of their wealth in real assetts which are not subject to inflation -- precious metals, art, land, and other commodities.  Meanwhile the middle class and the poor take it up the ass since they tend to have a high percentage of whatever wealth they do have, in the inflating currency.

moneymutt's picture

going Galt will never get you anywhere, in troubled times, only those organized in a community can survive, those on their own, looking out for only number one, good luck, your choices are be in a group of thugs or gansters, or be in a democractic union organized to resist thugs and gansters.

disabledvet's picture

It's a FRAUD....not a Ponzi scheme. Since it is done by THE GOVERNMENT it is perfectly legal. GET OFF THE SUBJECT OF PONZI. We all know what one is and we all know they are unsustainable. A fraudulent..."conveyance" (dollar debasement)...when done by the Government...can last centuries. Moreover in looking at dollar debasement in this CORRECT way you will begin to understand the amazing financial "blocking and tackling" involved...and it is truly AMAZING.

moneymutt's picture

The FED is not the govt, it is a private cartle of banks to which we have ceded the power to print our money, in return, we simply ask for the interest they make on said printed money and supposedly can fire their chairman. FED is the anti-thesis of democractic govt, it is not subject to democratic controls, it is not transparent....it has power govt should have and power that should be subject to review, democratic processes, checks and balances. No coutnry is soveriegn if it does not control is own currency, ask Greece vs. Iceland, and the US does not currently control its own currency. We could, its our constituional right, but we have let our govt give this power to the FED. Its a bit like giving Blackwater the power to make war on behalf of the US and paying for it partly with our tax dollars and partly by letting them rape and pillage any country they chose to attack. Meanwhile, US citizens will have defend themselves from the blowback harm that result from such wars. If we gave Balckwater that power, stupidly, would we then call the the "govt".

Wakanda's picture

Thanks disabledvet.  There is huge difference between ponzie and fraud done at the threat of punishment.  A ponzie scam is consensual.  One can walk away from a ponzie without threat of reprisal. 

Government uses force or the threat of force to perpetuate the theft.  It is non consensual - a violation of one's human nature or natural liberties.

I wish Zero Hedge would get clear on this.

Temporalist's picture

I guess it's fortunate for you that you never tried to walk away from a ponzi.

Seer's picture

"Government uses force or the threat of force to perpetuate the theft."

No, you're kidding? </sarc>

News flash: the State IS ("legalized") violence! and the violence is only allowed to work one way- from the top down; this is how the authoritarians operate, regardless of the "flavor" of their "government."

Wakanda's picture

I agree completely.  My point is that ZHers often refer to the Fed's actions as a ponzi.  It's not.  What they do is more akin to a rape or mugging.

cdskiller's picture

I suppose your point is well-taken. The term ponzi scheme is often used as a kind of shorthand to describe the reckless criminality of it. The intricacies of the fraud are much more difficult to explain. Regular readers of zerohedge have been extremely fortunate to have the insights of brilliant, informed writers who have been making the fraud clear for several years, now. Using the term ponzi helps people not versed enough in the workings of finance to understand that the structure and the methodology is certain to fail with only those in the know of the fraud allowed to profit before the collapse. In that sense, the fraudulent actions of the Fed are metaphorically similar to the creation of and cover-up of a Ponzi scheme. I must correct you in that Ponzi's are only consensual among co-conspirators. Investors who are duped have consented to nothing.

Wakanda's picture

Ponzi investors who were duped consented to participate but were forced to receive nothing in return.  I guess that makes the whole scam non consensual.  Somehow it does not seem the same as actions taken under the threat of violence.

Raging Debate's picture

Always was authoritarian rulers Seer. Liberty matters, faux democracy does not. Except after 11/11. Now there are both leaders and rulers

Clint Liquor's picture

Absurd! The FED prints money, buys treasuries, then turns the interest back to the Treasury. Is there any between this and the Treasury just printing money to fund Government?

moneymutt's picture

well befor the 1970s when a congressman raised a fuss about it, it was even more absurd, they printed out money, and we didnt get the interest, they kept it!

Even more absurd, they print money, give it the banks at 0.05 precent interest and the banks buyt Tbills with it. So we pay the private banks interest on the money the FED printed for them.

Soo....if you're thinking, you realize, we could print our debt away, and it would be NO MORE inflationary than what the FED has already done, and we would no longer have the additional cost of paying banks interest. Printing can cause inflation, but PRINTING has already happened, just not to our benefit, but to the benefit of a private cartel of banks.

The inflation the FED has created with our money since 1913 could have been the entire cost of running the govt, no taxes needed. Instead we have incur inflation costs, at least when our wages did not keep up with inflation, like mostly in the last 30 years, and had to pay big taxes and have huge national debt, the bnaksters and the FED got all the extra. What a waste.

CoolClo's picture

"There was good news yesterday for taxpayers, sort of:  the Federal Reserve turned $76.9 billion in 2011 profits over to the U.S. Treasury."


Lets not forget that the Fed pays out a tax free 6% dividend to its shareholders based on its profits.

So in round numbers, the Fed paid out about a $460 million dollar dividend that is tax free from Federal, state and local income taxes.

moneymutt's picture

wow, seriously...does the dividend get taken from the profits from revenue before they pay back Treasury?

Raging Debate's picture

You fucken liar. Next time add the word difference and stop insulting our intelligence. Or else.

Bartanist's picture

There are several differences.

1. The Fed is owned by the same banks that they are lending to and these banks and the Fed are subsequented owned and controlled by a very few unelected people/families. This creates a conflict of interest that spawns all other problems. In theory governments are elected to serve the needs of the people, whereas the owners of the banks and Fed are highly biased to serve themselves.

2. There is an additional layer of overhead with the Fed that gives rise to opportunities for corrupt skimming, embezzlement and favoritism as well as providing many unearned salaries for unproductive parasites.

3. Time and time again the Fed has been observed serving international banking interests contrary to our country's needs.

4. The hand that gives is above the hand that receives. It should be obvious that the Fed and its owners dictate government policy and not he other way around. The Fed and through its banking owners use the fiat creation and distribution process not only to enslave, but corrupt as well.

Putting the money creation and distribution power in the hands of psychopaths instead of elected officials does not seem to have provided us with any particular advantages.

moneymutt's picture

democratic govts can be corrupted, but I'll take democratic controls over private cartels interests anyday.

In theory, some kings may have run better countries/economies than any democratic govt in modern times has managed, but if read Chinese history or European history etc...for every one good king, emperor, there were all sorts of bad and tyranny.

We are not a sovereign nation if we do not democratically control our currency, yielding this power to the private FED, we are no more soveriegn than Greece and the banksters will do to us the same they did to them, endebt the state with loans that can not be paid back, never pay for loans by taxing rich (tax evasion of upper class in Greece was wildly rampant) then bleed the country for 30 plus years. We must take back our currency and all the free gains the FED gets from printing it, and instead use it for our common wealth, build infrastructure, lower taxes etc...

Seer's picture

In "theory" the Fed is supposed to be less manipulable than politicians: one need only look at all the kooks in the GOP race for POTUS (RP excluded) to reel in horror over what these fuckheads would do (really, the Constitution clearly says that ONLY the Congress can decaler war, yet...).  So, I wonder whether there couldn't be MORE manipulation if everything fell under Treasury... (just think of the wonders that can happens with "it's a national security concern" obfuscation.

3. Time and time again the Fed has been observed serving international banking interests contrary to our country's needs.

And time and time again the US govt has been observed serving the interests of foreign entities (Israel is a pretty good  example).  AND, time and time again the US govt has been observed NOT serving the country's interests, PERIOD!

In NO way am I trying to defend the Fed.  I'm just not thinking that POWER can be tamed here...

moneymutt's picture

we have democratic processes to intervene, sure govt gets corrupted, people get manipulated by media/politician slogans, lies...but the answer is not less democracy, it is more. More transparency, more accountability, more audits, more votes.

littleenglander's picture

Well our elected officials are psychopaths, just ones that are good at public speaking.... 

disabledvet's picture

well our first complaint should be "why the hell have we been paying taxes all these years." our second should be "why the hell are we paying taxes now?"

Mr Lennon Hendrix's picture

And they can't even make the needed 7% to kick the can down the road without monetizing the debt.  Economists are playing financiers, financiers think they are economists, and together the sides make up the thinktank of the Fiat Ponzi.