Perhaps because we are rapidly approaching Cinco de Mayo, I don't know.
Anyway, Chris Whalen of Institutional Risk Analytics sent me this angry email after I sent him a note telling him that the Treasury will not be "reimbursing" the Fed(that's nonsensical, anyway!) for mark-to-market losses on some of the Fed's asset holdings. I also told him that the Fed already gave $15 billion in profits to the Treasury so far this fiscal year.
This was his email to me:
|By the way, Fed expert, what is you loss estimate for all of the "assets" on the Fed balance sheet? That is the basis for my comment. Next time you tee off on me w/o doing your homework, I am going to do the Mexican hat dance on you Mike, in public. My guess is that the Fed could be facing hundreds of billions in impeded losses on its "assets." Since you did not bother to ask in your rude, discourteous note below, you have no chance to evaluate same. |
How does that affect you expert analysis?
Better, keep your comments to yourself next time.
And then I emailed him back and wrote:
Of the $2.17 trillion currently on the Fed's balance sheet approximately 41 percent of that amount is in risk free assets: Treasuries, Gov't agency securities (backed by Treasury) and foreign currency, where foreign CBs carry all the exchange risk.
That leaves $1.3 trillion of "other assets," which include MBS, Term Auction credit, Bear Stearns, etc. Let's assume it's ALL bad (you said, a couple of hundred billion; i'll go you one further and say, all).
Because the Fed can acquire assets for zero cost (it merely credits the reserve account of the seller's bank) it can easily acquire enough safe assets, to generate income that would go toward offsetting those losses.
Yes, it would take time and, yes, large-scale purchases of any asset, including Treasuries, would result in a reduction of the interest rate paid. However, the point is the Fed could easily grow its balance sheet, and its income, sufficiently, to offset whatever mark-to-market losses it may currently have.
The problem with you is, you're arrogant, a hot-head and you think you're somekind of genius, but you're not. I used to like you, and thought you had insights. It didn't take me long to find out that that was not true. Your last appearance on my radio show was a joke. My listeners could give you a good schooling. Better yet, they could do the Mexican Hat Dance on YOU!