What Kind of AAA Assets Are on Fed Balance Sheet Anyway?

by: Economic Disconnect

By now most are well aware of the games that allow various debt instruments to be rated AAA by the various agencies. The main part of the game is of course to just rate the stuff AAA and not worry too much about it.

The Fed feels that in order to maintain its Independence they must keep the bulk of their operations behind the curtain. Of course the Fed is all about appearances anyway. Change one word in a statement and affect the entire bond market, say you are separate from the politicians will while you execute the very will of the politicians, round and round.

Sometimes a few details fall through the cracks and what has been seen so far has not been encouraging if you pay taxes.

It may interest the readers to know that the Fed, and then by extension the taxpayers, now own a deserted shopping mall in Oklahoma City. This gift was packages into the Bear Stearns sale/bribe package. Mish has some details:
Fed Owns Deserted Oklahoma City Mall

As the Fed is now tapped out of their treasury purchase money, they will only have what's left of their MBS purchase power which was started at 1.5 trillion or so. What kinds of top rated paper that are just mispriced does the Fed hold? Guest writer EB at Zero Hedge has the details:
Fed Splurges on Freddie Gold
The story has plenty of details, but an introduction:

If you would like to know just how many California newlywed first time homebuyers with no mortgage insurance, with no verifiable assets or income were originated loans by unknown parties throughout the boom years of 2007 and 2008, or just how many Malibu yuppies are extracting the last bit of cash from their home ATM on this brief respite from the mean reversion in home prices due to end in the early teens, read link.

Hint: It is none too pretty.

The Audit the Fed bill has not had much coverage here because there is NO WAY it will ever happen. Even if, huge if, the bill should pass, the Fed will just decline to participate. Who is going to make them? If you answered anything other than nobody, are you sure? Final answer? Want to phone a friend?

Covered by a panic the Fed (and every other branch of government) are operating well beyond the scope and charters that define them. What are rules anyway? This speaks to what I wrote about Thursday night. If the voters voted out anyone that opposed the Audit the Fed bill, the next set of elected officials would gladly endorse it. When the Fed declines to play, more pressure could be applied by elected officials doing the will of the people, if not they are gonzo as well. Of course none of this will happen.

Credit Card Scorched Earth Policy
from Wikipedia, the greatest site the world has ever known:

Scorched Earth
A scorched earth policy is a military strategy or operational method which involves destroying anything that might be useful to the enemy while advancing through or withdrawing from an area.

It did not take long for almost every major credit card issuer to replicate the Citi (NYSE:C) monster credit card rate rise. On the surface this seems like a sure losing tactic, as the huge interest rates will both increased defaults and decrease credit usage. Denninger of Market Ticker has some provocative (aren't they always?) on this dilemma. While on the surface it may seem the Banks are going all out to get as much as they can from anyone that will pay before they lose too much money, I think something more nefarious is at work.

Think about the clear effects of what this policy will do, as written above:

-increased defaults

-decreased credit usage

Now which of the above two points is the Fed/Treasury/FDIC really concerned about?


I see this as an act of financial terrorism by the banks, something I have written on before.

I think this could be a concerted effort by the banks to force some kind of "deal" with the Fed/Treasury. In order to "restore the flow of credit" the banks will accept a much publicized limit on credit card interest rates, say to a paltry 20%, and in exchange, you guessed it, a backstop for escalating credit card losses. Both sides win. The banks pawn off another entire segment of loan losses on the taxpayer and our heroes in the government can say "Look what we did for the little guy. We lowered his CC rate".

I sincerely hope I am wrong about this.