The ongoing collapse in bond prices is making John Meriwether blush with envy at the wholesale wanton destruction of capital undertaken by Ben Bernanke. Keep in mind LTCM - the organization which proved definitively that Nobel prizes in economics are given only to the most consummate destroyers of value, logic, reason and humility - lost "just" $4.6 billion from its peak before it became the biggest systemic risk in the world back in 1998 and had to be rescued by a consortium of banks. The bottom line: with about $10 billion in SOMA losses today alone, Ben Bernanke has generated more than double the losses that nearly destroyed western finance 13 short years ago. And nobody cares.
John Lohman explains:
Chairman Top Tick continues to crash and burn, losing $7.2 billion in Treasury and Agency paper in today’s bloodbath alone. Adding a rough estimate for the MBS holdings would put the session’s losses well over $10 billion. Indeed, a baker’s dozen of John Meriwethers couldn’t destroy this much capital in such a short period of time.
And with all of the usual caveats that accompany a simple modified duration analysis (ignoring convexity, assuming instantaneous parallel shifts, etc.), the table below estimates the Fed’s losses for various upward interest rate shocks. Again, keep in mind this does not include the massive MBS portfolio, which is extending in duration with every uptick in rates.