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Many thanks to Barry at The Big Picture
A picture is worth a thousand words, or in this case, a few trillion dollars.
In mid 2007, The Federal Reserve, which controls the currency of the United States, had around $800 Billion of US Treasury notes at its disposal. The Fed uses these Treasury notes to try and control interest rates through money flow. Usually $800 Billion is a lot of money to throw around, and it gave the Federal Reserve the effect of being the 800 lb gorilla in the corner.
Today, the Federal Reserve has about half the Treasury notes they did 18 months ago. They have also increased their balance sheet from $850 Billion (including miscellaneous debt), to a whopping $2.2 Trillion.
How did they do it? The Fed just simply typed in a new set of numbers and claimed to have that much more money. Then, through the exchanges listed below, electronically sends those new numbers out to the entities they are exchanging with.
The Federal Reserve is owned by the big banks. It is not a part of the Federal Government. Ben Bernanke does not have to follow the advice of the President, he does have to follow the advice of the Fed's largest shareholders, which are the CEOs of the largest banks.
In 1914, The Federal Reserve Act removed control of the currency from the government, and gave it the newly established Federal Reserve. Congress can vote to change the rules under which the Federal Reserve operates. Congress can even vote to abolish the Federal Reserve, and bring control of the currency back into the US Treasury. So far, we have heard of no such movement in congress for any changes.
You may ask if the Federal Reserve is owned by the banks, don't they have to back any losses?
The answer is no.
The Federal Reserve is loaning the exchanged amount with the US Treasury. Because it is a loan to the US Government, it must be paid back, with interest. All losses associated with these exchanges will be born by the borrower, in this case, the taxpayers.
Let's break the chart down a little -
The big Purple area - that is how much we have given to foreign central banks that are mad at us because they bought debt based derivatives from Wall Street. As their derivative holdings continue to lose value, expect that area to get bigger.
Deep Pink, Aqua and Pink - Maiden Lane LLC was formed to guarantee assets of Bear Stearns for JPM Chase. Maiden Lane II and Maiden Lane III were formed to buy CDO's that AIG had insured through CDS. Expect all of those areas to significantly increase as the downgrading of derivatives continues.
Dark Blue - Money given to AIG so far, most of which has gone directly to Goldman Sachs (they were buying CDS on the CDOs they were selling, knowing they would fail). That area will probably get bigger, and there is 0% chance of recovery on anything given to AIG. AIG also insures the pension program of the US Congress. It probably does not insure your pension.
Green - That is more recent, and is the Fed's response to ease overnight commercial paper transactions. They are doing it by buying toxic assets.
Yellow - Asset backed commercial paper were toxic assets before the Fed bought them. They still are.
Light Pink - Securities lent to dealers. This means good US Treasuries exchanged for toxic assets that no one will buy, at any price. Problem is, the Fed exchanged them at purchased value, a 100% loss because these have a good chance of going to $0 in value, while the Fed holds them.
Red - TAF, the Term Auction Facility. Originally designed as the initial credit easing action, it has since turned into a free-for-all. The Fed initially accepted only AAA rated derivatives that were backed by solid debt. Now the Fed is accepting securitized auto loan debt, securitized credit card debt and securitized commercial loan debt. You can see how much the red has expanded recently, there is no logic telling us that growth will stop until the securitizing stops.
Many thanks to Barry at The Big Picture
A picture is worth a thousand words, or in this case, a few trillion dollars.
In mid 2007, The Federal Reserve, which controls the currency of the United States, had around $800 Billion of US Treasury notes at its disposal. The Fed uses these Treasury notes to try and control interest rates through money flow. Usually $800 Billion is a lot of money to throw around, and it gave the Federal Reserve the effect of being the 800 lb gorilla in the corner.
Today, the Federal Reserve has about half the Treasury notes they did 18 months ago. They have also increased their balance sheet from $850 Billion (including miscellaneous debt), to a whopping $2.2 Trillion.
How did they do it? The Fed just simply typed in a new set of numbers and claimed to have that much more money. Then, through the exchanges listed below, electronically sends those new numbers out to the entities they are exchanging with.
The Federal Reserve is owned by the big banks. It is not a part of the Federal Government. Ben Bernanke does not have to follow the advice of the President, he does have to follow the advice of the Fed's largest shareholders, which are the CEOs of the largest banks.
In 1914, The Federal Reserve Act removed control of the currency from the government, and gave it the newly established Federal Reserve. Congress can vote to change the rules under which the Federal Reserve operates. Congress can even vote to abolish the Federal Reserve, and bring control of the currency back into the US Treasury. So far, we have heard of no such movement in congress for any changes.
You may ask if the Federal Reserve is owned by the banks, don't they have to back any losses?
The answer is no.
The Federal Reserve is loaning the exchanged amount with the US Treasury. Because it is a loan to the US Government, it must be paid back, with interest. All losses associated with these exchanges will be born by the borrower, in this case, the taxpayers.
Let's break the chart down a little -
The big Purple area - that is how much we have given to foreign central banks that are mad at us because they bought debt based derivatives from Wall Street. As their derivative holdings continue to lose value, expect that area to get bigger.
Deep Pink, Aqua and Pink - Maiden Lane LLC was formed to guarantee assets of Bear Stearns for JPM Chase. Maiden Lane II and Maiden Lane III were formed to buy CDO's that AIG had insured through CDS. Expect all of those areas to significantly increase as the downgrading of derivatives continues.
Dark Blue - Money given to AIG so far, most of which has gone directly to Goldman Sachs (they were buying CDS on the CDOs they were selling, knowing they would fail). That area will probably get bigger, and there is 0% chance of recovery on anything given to AIG. AIG also insures the pension program of the US Congress. It probably does not insure your pension.
Green - That is more recent, and is the Fed's response to ease overnight commercial paper transactions. They are doing it by buying toxic assets.
Yellow - Asset backed commercial paper were toxic assets before the Fed bought them. They still are.
Light Pink - Securities lent to dealers. This means good US Treasuries exchanged for toxic assets that no one will buy, at any price. Problem is, the Fed exchanged them at purchased value, a 100% loss because these have a good chance of going to $0 in value, while the Fed holds them.
Red - TAF, the Term Auction Facility. Originally designed as the initial credit easing action, it has since turned into a free-for-all. The Fed initially accepted only AAA rated derivatives that were backed by solid debt. Now the Fed is accepting securitized auto loan debt, securitized credit card debt and securitized commercial loan debt. You can see how much the red has expanded recently, there is no logic telling us that growth will stop until the securitizing stops.
Are you getting nervous yet?
One thing needs to be pointed out: The total amount of shenanigans conducted by the Fed has actually declined since Obama took office. Unfortunately, because of promises made before the last administration exited, and with the appointment of Geithner to work with Bernanke, the total amount has a good chance of ballooning again.
All level 3 accounting must be eliminated, and all level 3 assets need to be declared, no matter who goes bankrupt. As the chart shows, our country will eventually fail if the hiding goes on any longer. Better to have the top ten banks fail than the US Government.
Wall Street created and sold over $600 Trillion in debt based derivatives. The Fed has been dealing with the first $1.5 Trillion to go bad, and it has already put us in danger.
Can they really handle a hundred trillion more?
Update 5:42 AM Tues., Feb. 24;
Today AIG may announce a $60 Billion loss in the last quarter, the largest loss ever recorded by a US corporation. Thanks to Henry Paulson and Congress, the US Treasury (American Taxpayers) are responsible for these losses.
Market Ticker has done some great homework, and this column is a must read.
One thing needs to be pointed out: The total amount of shenanigans conducted by the Fed has actually declined since Obama took office. Unfortunately, because of promises made before the last administration exited, and with the appointment of Geithner to work with Bernanke, the total amount has a good chance of ballooning again.
All level 3 accounting must be eliminated, and all level 3 assets need to be declared, no matter who goes bankrupt. As the chart shows, our country will eventually fail if the hiding goes on any longer. Better to have the top ten banks fail than the US Government.
Wall Street created and sold over $600 Trillion in debt based derivatives. The Fed has been dealing with the first $1.5 Trillion to go bad, and it has already put us in danger.
Can they really handle a hundred trillion more?
Update 5:42 AM Tues., Feb. 24;
Today AIG may announce a $60 Billion loss in the last quarter, the largest loss ever recorded by a US corporation. Thanks to Henry Paulson and Congress, the US Treasury (American Taxpayers) are responsible for these losses.
Market Ticker has done some great homework, and this column is a must read.
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