Time To Buy CDS On The Boston Fed?

Tyler Durden's picture

Something interesting happened in last week's H.4.1 release: the Fed disclosed that, for the first time ever, a Fed bank actually suffered a "loss" when the Boston Fed's Interest on Federal Reserve Notes (IOFRN) liability went negative, and quite negative at that.

As a reminder, the IOFRN liability is the accrual of Federal Reserve income to be repatriated to the Treasury the following week, or money made by the Fed system stand alone "hedge funds."

So does this whopping miss indicate an actual loss by a Fed - something that every economist says is inconceivable (after all they can just print it away). Maybe. Maybe not. Here is Stone McCarthy with an alterantive explanation, which shows that the only thing more screwed up with the modern financial system, is the accounting practices that govern it.

This accounting abnormality stemmed from an increase in the volume of Paid in Capital from member banks to the Boston Fed. By statute member banks have to set aside 6% of their capital to be members of the Federal Reserve System. The requirement is that only 3% or half of the 6% actually has to be invested in the Fed, the other 3% is sort of on call.


During the week ended February 1, 2012 an additional $379 mln of capital was paid in by member banks of the Boston District.


Also by statute the Federal Reserve Bank most maintained a Surplus equalled to the paid in capital of member banks. Thus the Boston Fed had to inject a matching $379 mln in capital. This increased the overall Paid in Capital of the Boston Fed to $1.322 mln.


The matching injection of capital by the Boston Fed came at the expense of the IOFRN accrual. In other words, the Boston Fed did not suffer a loss in the traditional sense, but had to retain $379 mln in earnings that they didn't have immediately on hand.


Without this $379 mln capital injection, the IOFRN accrual would have been comfortably positive. Welcome to the world of Fed accounting.

Welcome indeed, to a world where Fed hedge funds always make "profits" (until they don't), where accounting practices pull money out of Fed's communicating liability vessels (until all of them are empty), and where even a loss is somehow a profit.

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GetZeeGold's picture



OH....good morning Mr. Tyler......going down?







Pladizow's picture

Why, so the ISDA can simply say a 99% haircut is not a default!

Badabing's picture

All the numbers are as fake as my avatar.

Nobody special's picture

The preordained falsification of data will resume shortly. The MSM and ruling elite apologize for today's statistical oversight.

DeadFred's picture

Already done. Read Bruce K's post. False data flow is back on track.

trav7777's picture

just have one of the other FRBs lend them some money

JW n FL's picture







The Federal Reserve collects enough in interest payments from Private Debt that the public debt should be a wash.


Why is NO! ONE!! Talking about what the Federal Reserve Earns in Interest Payments from the Banks of the World!

Why is no one mentioning that given the 6% in earnings that the FED Share Holders Earn.. should be more than enough to right ALL of the WALL STREET BANKS?


How come NOT! one person has bothered to line item the FED's earnings?




Must I do everything?

JW n FL's picture




A Rothschild Speaks on the idea of Developing One International Currency

JW n FL's picture



Federal Reserve Earnings verse Federal Reserve Loans to the United States of America



1.    How much does the Federal Reserve Bank Earn in Interest Payments? From anyone other than the United States of America.


Federal Reserve $15 Trillion Dollars in Loans Bloomberg


Loans from 3 / 9 / 2008 to 3 / 9 / 2009 totaling $15,760,004,161,955.00




Getting Bigger

Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.

Total ** assets ** held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data

**  http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspx **



The Fed’s Secret Liquidity Lifelines





2.    Who are those Monies Participated Out too? That the Federal Reserve Bank Collected?

Who owns the Federal Reserve?

The Federal Reserve System fulfills its public mission as an independent entity within government. It is not "owned" by anyone and is not a private, profit-making institution.

As the nation's central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.

However, the Federal Reserve is subject to oversight by the Congress, which often reviews the Federal Reserve's activities and can alter its responsibilities by statute. Therefore, the Federal Reserve can be more accurately described as "independent within the government" rather than "independent of government."

The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation's central banking system, are organized similarly to private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.




So! The question stands.. if the Federal Reserve is collecting .25% interest on $100 Trillion Dollars a Month.. Where Does ALL!! That Money Go?!?!?!?!?!

6% here.. 6% there.. Participated Out to the Shareholders.. into there Federal Reserve Bank Accounts.


CoolClo's picture

6% dividend free from Local, State and Federal income taxes....

Mr Lennon Hendrix's picture

It had to happen sometime.  Buying all of the USTs in the world was weighing pretty heavily on its balance sheet, especially since its chief asset, its prop trade, GOLD, hadn't gone up in value proportionally.

francis_sawyer's picture

I hope they weren't pulling that money out of the register to make a bet on the Patriots...

LawsofPhysics's picture

Based on the "performance" I saw last night, I'd say they bet against the Patriots.

semperfi's picture

Patriots suck. Miracle they even made it to the super bowl. No defense. No run game. Brady throwing the ball up for grabs occasionally, making bad decisions - too many hits to his head I guess.

DeadFred's picture

Maybe a transition into government work? The qualifications suggest something in Treasury maybe?

HoofHearted's picture

Shit, they need to hire me. I could make money every damn day if they allowed me to print it in my basement. Don't believe me. Hire me. I'll even work on a commission basis, keeping just 10% of what I print while giving the rest straight to Printocchio himself, the man who wants to be a real boy, the Bernank.

Chief KnocAHoma's picture


Please explain to Chief as if he were just a dumb ole' country boy. WTF does this mean?

AGuy's picture

Is this how we say "Hello NIRP"?

(Negative Interest Rate Policy)



falak pema's picture

will the cds market be what it is ?

Wait n see after Greece!

Rastadamus's picture

Don't worry we got gold in the Fort Knox.....

GeezerGeek's picture

Until, that is, Iran detonates a nuke there and vaporizes all the gold.

Oops, didn't mean to give away the game plan...

cliffynator's picture

Everyone knows the game plan: see Die Hard 3.

GeneMarchbanks's picture

Surely there's a swap for that?

LawsofPhysics's picture

It's about fucking time.  Now for the the Philly Fed.  Let me say this one more time, Fuck New York.

All according to plan.

MsCreant's picture

Someone isn't paying Eric the tribute they should. You goombas gotta kick some profits upstairs or face the wrath of the family.


Burr's 2nd Shot's picture

I'll sell you that protection.  If you are right, I pay you in FRNs.

Of course, if you want payment in real money, I think you'll find the initial margin to be pretty steep.

DavidC's picture



GovtMediaLiars's picture

All-in short spx on mid-day friday.

So, whos got a couch for me to live on after Bernake empties my account and brings me to my knees? 

toros's picture

Past Performance is No Guarantee of Future Results

YesWeKahn's picture

I told you that the FED is special.

ACP's picture

The Fed would never pay out on CDS, but they sure would sell it.

Does this mean that the Treasury will have to repatriate our tax dollars back into the Fed?

Heyoka Bianco's picture

They've achieved at least one purpose. I read that twice and still don't understand what the fuck it said.

However, I am going to include a copy in my next credit card payment instead of a check, with my name instead of Boston Fed, hoping to prove my card is actually paid in full due to a recalculation of the CPE.

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