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Former Olympic Rower Turned to Minimalism to Pay Down $82,000 in DebtThe Federal Reserve has lent out $2 trillion worth of your money -- but it refuses to say who got it or on what terms. We already know that $29 billion worth went to JPMorgan Chase (NYSE: JPM) -- to shift the worst junk on Bear Stearns' balance sheet to the Fed's back in March. And it's safe to assume that the $2 trillion the Fed lent out is being exchanged for similarly junky assets.
Why is the Fed keeping this information secret? I can only guess at three reasons. Is such secrecy appropriate for the U.S., which is supposedly a democracy? I don't think so. My guess is that the Fed is keeping all this secret because it believes that such secrecy will keep the world from losing whatever shred of confidence it still has in the global financial system. That's because the loan recipients probably include every major financial institution.
The second reason may be that the Fed does not want us to know just how much risk it has taken on. But it should be pretty obvious that the Fed's balance sheet, which used to have $800 billion in relatively safe Treasury securities, is now weighted down with all the toxic waste that banks took on to boost executives bonuses during the last several years. And the key question is how big a loss that the Fed will end up taking on these assets.
The final reason for the secrecy may be a reluctance to give the market useful insights into what the Fed thinks these assets are really worth. Such pricing information would likely lead to far bigger asset write-downs. And the bigger write-downs would require an increase in the amount that the financial institutions would need to raise in order to comply with minimum capital requirements.
Ultimately, the truth will come out. Perhaps, the current administration wants his successor to reveal the Fed's dirty little secret.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in JPMorgan securities.
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Reader Comments (Page 2 of 2)
11-11-2008 @ 9:18AM
luke said...
Peter,
Thanks again for your political commentary and insight into the current administration. Wow you really are hung up on "W". Sure he is the worst president in history but your blog is off the rails. Can you please take a day off each week to go out and wave support banners for your candidate elect and then on the other days write some objective useful commentary that is market specific? The election is over and as they say "it is what it is"
11-12-2008 @ 4:45PM
Jon Snow said...
Eyes wide Open?More money to AIG to pay for th-
ose guaranteed/trust funds they spent(old people
seniors annuities).?Where is the money?--try Cer-
ebrus Financial Mgt! But where is our money?
Bailing out the junk bonds(aka-Buckets, Tranche,
Derivatives, Hedge Funds). But 2 tril-Wheres the
money?- taxpayer Payoff Daimler-Benz?+ for??.
But--Try more railroad and airline help.Bonus++
And with same management.
11-25-2008 @ 4:46PM
Loretta said...
The government and Congress never fails to point out that small businesses are the "hub" of society and employ so many of the people. If that's the case, why don't they give some of that wonderful no questions asked or strings attached money to we, the small business people??? We don't even need the money in "billions" either. A few hundred thousands would go a long way to many small businesses and we can hire more people which in turn starts up the economy.
I guess the small business is not as important as our "Washington talking heads" say and who cares if we fail just as long as AIG keeps planning those wonderful business trips, the banks and their CEO's fraudulently wasting our money, Detroit's Big Three failing miserably each year but giving their CEO's the much needed millions in salary they so rightly deserve.
Do I sound bitter?
12-01-2008 @ 10:38AM
Glen said...
First of all the Federal Reserve is not part of the U.S. Government. They do not loan out "Our Money" They are not taxpayer funded and therefore Congress has no authority over the Federal Reserve. Legally, what the Federal Reserve does with their money is really only the business of the stockholders of the Federal Reserve Banks.