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. Christopher Whalen Managing Director Office: 914-827-9272 Mobile: 914-645-5304 www.institutionalriskanalytics.com |
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!
-Mike
7 comments:
Mike,
I just watched Charlie Rose with Stiglitz, Sorkin ( NY Times ), some young lady from WSJ, and William Ackman of Pershing Square Capital.
They all agreed that Tax payers are on the hook ... and that bonds are paid back by tax payers. Maybe a local municpal, but they were talking Fed level.
I can only see that this is the old smoke screen - to take away attention from waterboarding or something.
Also reminds me of the debt terrorist's dogma of last year that the government was printing money at 15% for the Iraq war if they were Ron Paulish or for something else if person is democrat or Republican version of said debt terrorist.
Finally they discussed goldman or whoever is trying to pay back the TARP money. They did not explain that pay backs mean the government earns interest and thus income without having taxed the taxpayer !!!!
And William Ackman calls himself an activist investor ?
Please find today's ( Friday April 25 ) Rose episode and write an email to all these bozo debt terrorists !
Even Frischberg is now coming on board and explaining that "printing money" has always worked and that is what is going to happen. That means even Art Lauffer is also agreeing, but still injecting the scare about inflation.
The whole point is that we need inflation to stop deflation.
Another thing please point out again your graphic metric which shows that the government was NOT printing money as much as everyone feared.
I wonder if that could be explored more because if printing money was taking place then accoring to elastic currency theory it should have an effect other than create "debt to future generations".
I am interest to explore :
you say in your March 18th blog that interest rate differentials do not affect the Forex ( maybe by theory ) but we see that it does for USD and GBP. Is the fact that it does not immediate factor in the EU is because USD & GBP can be "printed" ( really created via credits to central banks ) where as EU is not sovereign and cannot deliver currency as such ?
Clearly Mike Norman has had the explanations showing that tax payers are not on the hook.
Taxpayer on the hook - a smoke screen to prevent justice being served to waterboarders of torture and Bush cronism.
Taxpayer not on the hook !
Mike
Its a shame that he has resorted to this type of thing. BTW he did not address your point of whether the Treasury would or would not have to reimburse the Fed., he refers instead to his "loss" estimates. Unprofessional to say the least.
There are a lot of numbers flying around about how much the Govt is spending on "the bailout". Many are confused as to how much has been spent vs how much was appropriated etc. I found this site:
http://bailout.propublica.org/main/list/index
that shows how only $383B of the $1.1T ($700B TARP + $400B GSE) that the Govt has budgeted for the bailout has actually been spent or loaned so far. This organization is a "taxpayer on the hook" type of organization so I dont think they would underestimate the numbers as they politically would want it to be as bad as they could represent.
The $383B spent so far is only about one month of US retail sales level before the recession.
If you and Warren M. are right and the stabilizers are kicking in and this thing has bottomed and is starting to turn; this $383B could be about the high for the "bailout", and would be virtually nothing for the US Treasury in retrospect!
thanks for this blog,
Matt
Matt,
Yeah, how about his "threat" to do a Mexican hat dance on me! Hahaha! What a clown.
I've seen those "bailout cost" numbers. Ridiculous. They're saying $10 tillion in some of those, as if the money were already spent. Actually, I wish that amount was spent.
Goog:
Unfortunately, Siglitz allows his politics to wash over into his economics. That is his reason for saying taxpayer on the hook. He is a liberal Democrat who wants the little guy to get some help--which is fine--but his way of protesting the bailouts is to say the little guy is footing the bill and getting nothing. The little guy may be getting nothing, but he's not footing the bill either. Stiglitz is correct in the sense that the Obama believes that the government is constrained in how much it can spend and if it has spent on helping big Wall STreet banks, then Obama may believe there is nothing left over to spend for other programs and therefore, people have to sacrifice.
Post a Comment