The FED shock absorbers in a picture

Via Sudden Debt this morning.

See this picture, it is a before and after picture of the FED asset structure. It summarizes the crisis pretty well.

The biggest action has been reliquify assets in the industry. They have pawned L3 assets for Treasuries (for free). A pretty good trade on the surface of things (for the banks) at the expense of the tax-payers.

The assets are illiquid and probably mis-priced and may go further down in value. If they do, this has been a socializing of losses. If on the other hand the asset go back up in value (unlikely keep in mind that banks offloaded their crap, by definition of these facilities) it would have been a good trade.

Point is the risk is transfered to the FED.

There is 57% left of treasuries, so quite a way to go still on "shock absorption" this is what is left.


Anonymous said…
The great swindle of the century!

The US tax payers are mopping up for the bankers.... and they are none the wiser for it.

What a scam. As the other post points out, Originate to Repo is an industry these days.

The socialization of the US economy is today a fact. The US FED is holding a lot of securities that were private not so long ago, for sure.

The FED has become a non-profit concern, communism is just $400B away!
Marcf said…
Swindle or not, one can make the argument that Ben and co have weathered the storm so far. I have read with great interest this "conspiracy theory" book called "The creature from Jekyll island: A second look at the Federal Reserver" where it is essentially characterized as a Fabian plot to bring about World Socialism. Certainly a 400B worth of assets held by the govt counts as "socialization of losses". However it represents only 2% of the US economy? so it is far from communism :) but yeah, clearly a step in that direction.
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