While working with congress in early 2009 to save the nation's largest financial institutions from themselves, the Fed began a project to rescue the country's mortgage market. Since then the Fed has been essentially printing money to buy Mortgage Backed Securities in an effort to prevent the collapse of the mortgage market and the ripple effects this would cause.
[The Fed's] assets are 43 times its capital, compared with 15 times at Goldman Sachs. As a result, its equity could be wiped out by just a 2.8% drop in the value of its Treasurys and securities issued by Fannie Mae and Freddie Mac.
So a 3% drop in the Fed's MBS portfolio would cause it to be insolvent, huh?...