Prying Into the Fed's Balance Sheet
Taxpayers deserve transparency.
- George Soros
All I can say is, George, I couldn't agree more.
Through much of 2006 and 2007, many of us were frustrated with lack of volatility in the markets and the fact that markets moved ever higher while credit spreads moved relentlessly tighter. Then, in mid-2007, it all changed. The sub-prime meltdown began with two Bear Stearns (BSC) hedge funds imploding due to poorly placed bets in the subprime space. The collapse and then the rescue/bailout/buyout/takeover of Bear may have signaled a short-term bottom for credit and for financial stocks. After all, "what the market knows isn't worth knowing."
What I mean by this is that markets tend to hate uncertainty. We all knew that someone was going down. We just didn't know who. My earliest writings included the possibility of Bear Stearns or Lehman Brothers (LEH) and then Merrill Lynch (MER) and/or Morgan Stanley (MS). So Bear Stearns now rests peacefully in the arms of Jamie Dimon and JP Morgan (JPM). J.P. Morgan himself would likely be proud of the deal that Mr. Dimon cut. He was "the only bid in a bid-less market" and he knew it. The Federal Reserve and the financial system were on the ropes so they let JPM grab Bear for a song.
But who bears the brunt of this trade that JPM benefits from? We the people.
Show Me Yours
Who owns the Fed? In the beginning, it was controlled by all the banks and brokerage firms. To see a wonderful representation of the initial ownership of the Federal Reserve, click on this link. The Fed wasn't federal in the least.
Click here for ownership of the Federal Reserve.
The Federal Reserve is a cartel of private banks, of which the Bank of New York is the most powerful. To this day it controls the U.S. economy and thereby affects all of our lives. Through its U.S. offshoots and connections like J.P. Morgan and Kuhn, Loeb, and Co. the Rothschild empire controlled the principal New York banks and, through them, the Bank of New York. This gave them control of the Federal Reserve System and the American Economy. This Federal Reserve cartel is nominally controlled by the government-appointed Federal Reserve Board, which is another way of saying the Elite control it.
The cartel lends money that doesn't exist to the U.S. government and has thus ensured that the country - and therefore the people - are drowning in debt to the banks. By 1910, the behavior of the banks had made them deeply unpopular with the people. The Elite had to think of a way of persuading the public to accept a banking coup on the American nation while thinking the power of the banks was being curtailed. So when the bill the bankers had written was introduced by their front politicians they publicly and vehemently opposed it.
This gave the impression that the bill was bad news for the banks and it was passed into law in 1913, in the belief that it curtailed the power of the money manipulators. It didn't. It gave them total control. Just to be safe, the Federal Reserve Bill was put before Congress shortly before Christmas, 1913, when many Congressmen were already at home with their families for the holiday.
- And the Truth Shall Set you Free (David Icke)
From the Federal Reserve's website:
The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.
As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by 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 Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."
The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like 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% per year.
So, I suppose, the American people own the Fed. And since we own it, I for one would like to know specifically what is on its balance sheet. After all, my firm (Atlantic Advisors) are a regulated entity (the SEC is our regulator) and it sends client statements with complete transparency on a quarterly basis. Further, even in the hedge fund that my firm manages, The Harbor Pilot Fund, we offer monthly transparency to our investors. After all, it's their money and they have a right to know what they own.
So I ask this question candidly and openly: Can I please see what's on the Fed's balance sheet?
In recent days, the Fed, through several new "auction facilities," has allowed primary dealers to come to the discount window which used to be defined as 'a place provided by the Federal Reserve where member banks may borrow at the discount rate.' Whew, that's a lot to digest.
But what's important is how things have changed so quickly. Some will say Fed Chairman Ben Bernanke is forward thinking and using all the tools in the Fed's toolbox. Others will say he's desperate. That 's for each of us to decide. But the discount window used to be a place where desperate, poorly capitalized commercial banks would go to borrow money. Now it's a place for banks and primary dealers to go to offload hundreds of billions of dollars of 'hard to sell, hard to price securities' in exchange for the Fed's Treasury notes. If you don't believe me, just take a gander at the Fed's latest balance sheet which was released just yesterday and can be found by clicking here.
A year ago, according to the table, the Federal Reserve's $915 billion balance sheet was almost all Treasury securities. That number is dwindling quickly. If you were Lehman, Goldman, Merrill or Morgan, what securities would you send in to the Fed? Your 'hard to price', impossible to sell assets or your liquid Treasuries?
I know what I would do; I would send every security I could until my balance sheet was in better order. Put another way, dealers recklessly managed their balance sheets and their risk profile, levered up to 35 to 1. They then get to use the Federal Reserve as a dumping ground for their mistakes.
And then, the Fed placed their own staff inside the offices of the dealers to be sure they're not doing anything else that would potentially cause harm on the system. The thought of a bunch of Fed officials sitting in the offices of Goldman, et al, actually makes me chuckle a bit as it proves just how messed up they must be.
So I have one request for the primary dealers, commercial banks and the Federal Reserve itself. Show me yours and I'll show you mine. Since my children and I will likely inherit this bailout of the securities industry, I would like to see exactly what I own.
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