"World's Greatest Hedge Fund In History" Generated $91 Billion Profit In 2013

Tyler Durden's picture

While investors enjoy collecting and reading the monthly and year end letters by distinguished hedge fund managers, the only one that really matters is the annual report by the world's "greatest hedge fund in history" (not our words, those of Warren Buffet). It is here where we find that in 2013, the Fed generated a record $90.5 billion in Interest Income, surpassing the previous all time high of $88 billion set in 2011.


However, despite the record surge in profits, this year the Fed's remittances to the Treasury fell materially from 2012 (due to the absence of one-time gains), and were virtually unchanged for the past 4 years, at just shy of $80 billion.


But what is most disturbing is that the Fed is getting increasingly less bang for the buck courtesy of its own ZIRP policy where every incremental dollar of debt monetized leads to less and less interest income. This is best shown in the declining Return on Assets: recall that in 2013 the Fed's total assets rose by over $1 trillion from $2.9 trillion to $4.0 trillion as of December 2013, a 38% increase. And yet the profit boost was a fraction of this increase. Sure enough, ROA tumbled, and continues to drop: at 2.2% down from 2.8% in 2012, the Fed's "efficiency" is now the lowest since QE began in 2008, when ROA was just 1.9%.


If there was one place where everything was normal, it is in the Fed's salaries and benefits line. At $3.2 billion it just hit a new all time high, and posted an increase of 4.6% from 2012, a number which incidentally is far more indicative of the real cost of living increases which the Fed is happy to provide for its own employees if nobody else among the 99%.

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icanhasbailout's picture

To get some real perspective, it's time we started measuring bank profits as a percentage of GDP.

john39's picture

central banking was never really about profit.  it was and is about power.  the power of the printing press has been such permit most of the world to be conquered by a tiny minority of truly evil people.  could not have happened without the press.

flyingpigg's picture

It's not only about power but also about enriching the big banks. As most know the Fed is owned by the shareholders (big banks) and the Fed pays 6pct of the profits as dividend to these shareholders. The Fed can write a free check to buy a shitload of government bonds. Treasury = government needs to pay the interest. ZIRP is compensated by increasing the bond purchases. So basically it's a schema to funnel the money from the tax payers to the big banks. And that's why we call each other Bitchez at ZH!

Herd Redirection Committee's picture

Its first and foremost about power.

You could change everything in the legal, political, education system, but leave the [banksters] power to create loans from 'fractional reserves' and they will own everything again, before morning.

Usury, fiat currency, and fractional reserve banking must go, in my lifetime.  That is the only legacy I wish to leave behind for my progeny.

I Am Not a Copper Top's picture

Actually most do not know that. 



Unknown User's picture

The FED is now paying interest on deposits so banksters get double interest on their bonds from Uncle Sam.

HedgeAccordingly's picture
World Bank Kim: Changes to econ policy in China to lead to slower growth | [video] | http://t.co/iKejITphVh
3/14/14, 11:32 AM
Dr. Engali's picture

How much of that salaries and benefits increase can be attributed to the expansion of the fed's private police force?

Cursive's picture

As usual, Uncle Warren is practicing his special brand of obfuscation.  The Fed isn't the the world's greatest hedge fund.  When you are the Fed, there is really ZERO HEDGE!

101 years and counting's picture

adding 1.1 trillion should yield more than a .2% increase.

must be all the MBS losses the fuckers are taking on and passing back to the taxpayer.  ben/yellen should be hung for this treason.  

resurger's picture

How the fuck can they raise interest rates is the question?

TideFighter's picture

101 years....

I agree with your theory, and they will continue absorb huge MBS losses. Fannie & Freddie to close...Rahm Emanuel threatening to double property taxes to fund pensions (national problem)...rates rising means stay away from RE.  

nightshiftsucks's picture

If they doubled property taxes then property values would collapse,I would love to see the efects from that.

Schmuck Raker's picture

Anyone know the number of employees? ('08-'13)

resurger's picture

How much is their dvO1 now?!

withglee's picture

Does return on assest mean anything when your assets are free? Shouldn't we be looking at return on "net" assets ... and in a properly managed MOE that should be zero.

Herd Redirection Committee's picture

Yeah... except for that whole "No one will pay us what we paid for this junk" problem.

Quinvarius's picture

And thanks to the Fed, every hedgefund run by a bank (trading desk) can treat the Fed's printing press just like it owns it too.  Free 0% forever loans for everyone in the club.  Oh well.  It is just paper.

pragmatic hobo's picture

let me get this straight ... fed buy iou from treasury, treasury pays the fed interest payment ... fed gives it back to treasury ... and it's called profit?

ThirdCoastSurfer's picture

Actually, it's primary dealers (mostly banks) buy paper at auction, then the Fed attempts to buy paper from primary dealers by preannouncing the amount it has to spend and what it would like to buy, Treasury pays the Fed interest, then Fed returns what it can't spend and calls it profit. 

WarPony's picture

FED keeps 6% of "profit" - they got to call it something.

ThirdCoastSurfer's picture

Actually, it's primary dealers (mostly banks) buy paper at auction, then the Fed attempts to buy paper from primary dealers by preannouncing the amount it has to spend and what it would like to buy, Treasury pays the Fed interest, then Fed returns what it can't spend and calls it profit. 

ChargingHandle's picture

Can we see the data in regards to the 9 trillion in alledged shadow banking the Fed particpates in? 

WarPony's picture

Cost-plus contract to print Notes - priceless; $5.43 Billion to shareholders - gravy.

Ariadne's picture

911, Who benefits?

flyingpigg's picture


The shareholders of the FED benefit directly via the 6 pct annual dividend. The insiders benefit indirectly.

rlouis's picture

One one hand, it looks as though they are eating themselves - perhaps that is the ultimate end of ponzi-ass fractionalizing cretins.  On the other, it appears to me that a new level of central banking will need to be created to keep this from imploding into a blackhole - perhaps it could be named the Association of Systemically Significant Global Asset Securitizers (ASS GAS)


magne13's picture

The Federal Resreve does not have to REALIZE losses unless they sell a security, so what will happen is the FED, the bad bank it is, will print an print and buy time and let these securities roll off, the FEDs remittance to the Treasury will continue to decline even if the FEDs balance sheeet expands, because theoretically interest rates should move sideways to higher over the longer term, but we will be long gone before the FED sees realized losses if any.

cowboybob's picture

The auditor's opinion to the FRB annual (portion below) alerts you to the fact that the accounting system used by the central bank is one of their own making. See page 102 of the Financial Accounting Manual for Federal Reserve Banks to get the whole story. They don't mark SOMA assets to market, they don't care about profits, they don't produce a cashflow statement because it is meaningless to meeting their mission.

Basis of Accounting

We draw attention to Note 3 to the combined financial statements, which describes the basis of

accounting. The Division of Reserve Bank Operations and Payment Systems has prepared these

combined financial statements in conformity with accounting principles established by the Board, as

set forth in the Financial Accounting Manual for Federal Reserve Banks, which is a basis of

accounting other than accounting principles generally accepted in the United States of America. The

effects on the combined financial statements of the differences between the accounting principles

established by the Board and accounting principles generally accepted in the United States of America are also described in Note 3 to the combined financial statements.