The Federal Reserve's Balance Sheet: An Update

Tyler Durden's picture

Chairman Ben S. Bernanke


October 8, 2009

The Federal Reserve's Balance Sheet: An Update

To fight a recession, the standard prescription for a central bank
financial conditions and supporting economic growth. In the current
downturn, however, the Federal Reserve has faced two historically
unusual constraints on policy. First, the financial crisis, by
increasing credit risk spreads and inhibiting normal flows of financing
and credit extension, has likely reduced the degree of monetary
accommodation associated with any given level of the federal funds rate
target, perhaps significantly. Second, since December, the targeted
funds rate has been effectively at its zero lower bound (more
possibility of further stimulating the economy through cuts in the
target rate. To provide additional support to the economy despite these
limits on traditional monetary policy, the Federal Open Market
actions and initiated a series of new programs that have increased the
size and changed the composition of the Federal Reserve's balance

I thought it would be useful this evening to review for you
the most important elements of the Federal Reserve's balance sheet, as
so provides a convenient means of explaining the steps the Federal
Reserve has taken, beyond conventional interest rate reductions, to
these points in April at a conference sponsored by the Federal Reserve
so an update seems timely.1

information is a feature of the Board's website titled "Credit and
Liquidity Programs and the Balance Sheet."2
This source provides extensive and regularly updated information on our
programs and goes well beyond the basic balance sheet data that we
publish every week.3

To get started, slide 1
the Federal Reserve currently total about $2.1 trillion, up
significantly from about $870 billion before the crisis. The slide
also summarized in slide 1, primarily consists of currency (Federal
Federal Reserve by commercial banks and other depository institutions).
Later in my remarks, I will discuss the relationship between Federal
Reserve liabilities and broader measures of the money supply. I will
Federal Reserve's balance sheet and the broader money supply during the
transition back to a more familiar framework for monetary policy. Our

The Asset Side of the Federal Reserve's Balance Sheet
side. For decades, the Federal Reserve's assets consisted almost
holdings of other financial assets have expanded dramatically. As slide
includes such diverse items as foreign exchange reserves and the
buildings owned by the Federal Reserve System, the assets on the
Federal Reserve's balance sheet can be usefully grouped into four

mutual funds;

(2) targeted lending programs, which include loans to nonfinancial
borrowers and are intended to address dysfunctions in key credit

(3) holdings of marketable securities, including Treasury notes and

(4) emergency lending intended to avert the disorderly collapse of
systemically critical financial institutions. I will say a bit more
about each of these in turn.

Short-Term Lending Programs for Financial Institutions
is about 12 percent of the assets on the Federal Reserve's balance
sheet. This category of assets consists mainly of loans made directly
or indirectly to sound financial institutions. Such loans are fully
suffered no losses on any of these loans.

From its beginning, the Federal Reserve, through its discount
window, has provided credit to depository institutions to meet
authors--a principal tool for arresting financial panics.4
Indeed, when short-term funding markets deteriorated abruptly in August
liquidity available to the market by lowering the rate charged for
were reluctant to rely on discount window credit, frustrating the
Federal Reserve's efforts to enhance liquidity. The banks' concern was
implies, provides fixed quantities of term credit to depository
institutions through an auction mechanism. The introduction of this
facility seems largely to have solved the stigma problem, partly
because the sizable number of borrowers provides a greater assurance of
auction and auction settlement suggests that the facility's users are
These programs, along with similar lending by other major central
banks, appear to have helped stabilize the financial system here and
abroad by ensuring depository institutions access to ample liquidity.
In particular, increases in Federal Reserve loans to banks have been
associated with substantial improvements in interbank lending markets,
policy rates.

Like depository institutions in the United States, foreign banks
with large dollar-funding needs have also experienced powerful
liquidity pressures over the course of the crisis. This unmet demand
from foreign institutions for dollars was spilling over into U.S.
funding markets, including the federal funds market, leading to
increased volatility and liquidity concerns. As part of its program to
reciprocal currency arrangements, or liquidity swap lines. In exchange
for foreign currency, the Federal Reserve provides dollars to foreign
their jurisdictions. This lending by foreign central banks has been
helpful in reducing spreads and volatility in a number of
foreign exchange swap market. Once again, the Federal Reserve's credit
counterparty and is responsible for repayment, rather than the
institutions that ultimately receive the funds; in addition, as I
noted, the Federal Reserve receives foreign currency from its central
dollar-funding markets across the globe.

In March 2008, following a sharp deterioration in funding conditions
Discount window lending and swap lines are part of the Federal
Reserve's standard toolkit and are recognized in the Federal Reserve
Act with provisions specifically identifying and authorizing each
which we judged to be necessary for the stability of the financial
system and of the economy, the Board of Governors invoked general
allows the Federal Reserve to make secured loans under "unusual and
exigent" circumstances to any individual, partnership, or corporation.
Using this authority, the Federal Reserve made short-term
collateralized loans available to primary dealers through an analogue
to the discount window called the Primary Dealer Credit Facility
of financial institutions, the Federal Reserve supported broader market
and systemic stability. Reflecting a gradual improvement in financial
to provide liquidity to another type of financial institution, money
market mutual funds. The money fund industry suffered a significant run
insurance program offered by the Treasury, the Federal Reserve's
under the Federal Reserve programs aimed at stopping the run on money
funds has also dropped essentially to zero.6

The unstinting provision of liquidity by the central bank is crucial
terms of central bank lending facilities should discourage usage and
encourage firms to return to the private markets when the panic
this trend to continue as markets improve.

Targeted Lending to Address Credit Market Dysfunction
consists of targeted lending programs aimed at improving the
functioning of certain key credit markets, thereby providing critical
category comprises the Commercial Paper Funding Facility (CPFF) and the
of credit outstanding under these programs is about $84 billion,
or four percent of the assets held by the Federal Reserve.

The commercial paper market is an important source of short-term
funding for both financial and nonfinancial firms in the United States.
In September 2008, the collapse of the investment bank Lehman Brothers
commercial paper. Because money market funds are major investors in
disrupted the commercial paper market. During this period, commercial
both the borrowing firms and the lenders to significant rollover risk.
have been quite successful. Since the CPFF was created, commercial

Before the crisis, securitization markets were an important conduit
these markets as the "shadow banking system." Securitization markets
(other than those for mortgages guaranteed by the government) were
virtually shut down in the crisis, eliminating an important source of
borrow to finance purchases of the AAA-rated tranches of certain
classes of asset-backed securities. The program originally focused on
credit for households and small businesses, including auto loans,
Business Administration. More recently, we have added commercial
a severe refinancing problem in that sector.

The TALF has had some success in restarting securitization markets.
Rate spreads for asset-backed securities have declined substantially,
collateral and because capital from the Treasury provides additional
loss-absorption capacity. Unlike the other programs, TALF credit
outstanding has increased over time, as the loans made under this
program are for terms ranging from three to five years.

Relative to the Federal Reserve's short-term lending to financial
institutions, the CPFF and the TALF are rather unconventional programs
crisis response to reflect the evolution of financial markets. Nonbank
sources of credit, such as the commercial paper market and the
securitization markets, are critical to the U.S. economy, especially
compared with the more bank-centric economies of many foreign
countries. By backstopping these markets, the Federal Reserve has
helped normalize credit flows for the benefit of the economy.

Purchases of Longer-Term, Marketable Securities
third major category of assets on the Federal Reserve's balance sheet
that all of these securities were Treasury obligations.

Even as other categories of assets shrink, Federal Reserve holdings
slide 4 shows, our holdings of securities declined from the period
announced in November 2008 that it would begin to purchase agency debt
The Treasury purchase program is being completed this month, while the
quarter of 2010. Note, incidentally, that the Federal Reserve's
purchases of Treasury securities have served only to bring its holdings
The principal goals of our recent security purchases are to lower the
cost and improve the availability of credit for households and
MBS purchases in November, helping to support the housing market.

Support for Specific Institutions
In addition to
the programs I have discussed, the Federal Reserve has provided
financing directly to specific systemically important institutions. In
emergency lending powers to facilitate the acquisition of Bear Stearns

From a credit perspective, these emergency loans obviously carry
more risk than traditional provisions of central bank liquidity. Two
Federal Reserve loans that are collateralized by riskier securities are
quite small compared with our holdings of assets with little or no
result of actions taken to avert what likely would have been a
substantial further intensification of the financial crisis, with
potentially dire economic consequences.

All that said, we undertook these operations with great discomfort
and only because the United States has no workable legal framework for
winding down systemically critical financial institutions in a way that
would allow firms to fail and their creditors to lose money without
inflicting massive damage on the financial system. The Administration
and other regulatory agencies have joined the Federal Reserve in
calling on the Congress to develop a special resolution regime for
systemically critical nonbank financial institutions, analogous to one
failure of such institutions threatens financial stability. The rules
governing such a regime should spell out as precisely as possible the
role that the Congress expects the Federal Reserve to play in such

The Liability Side of the Federal Reserve's Balance Sheet
reviewed the main categories of assets on the Federal Reserve's balance
The two main components of our liabilities are Federal Reserve notes
depository institutions. In addition, as the government's fiscal agent,
the Federal Reserve holds Treasury deposits.

The amount of currency in circulation is determined by the public's
certain quantity of reserves, which depends on the amount of customer
deposits that the banks hold.10
Reserves exceeding the required amounts are called excess reserves. As
currently excess reserves.

Effectively, the Federal Reserve funds its lending and securities
purchases primarily through the creation of bank reserves. As you can
risen dramatically as the Federal Reserve's balance sheet has expanded,
and reserves are likely to continue to grow as the Federal Reserve
purchases additional agency-backed securities. Currency and bank
reserves together are known as the monetary base; as reserves have
banks are reluctant to lend in current economic and financial
comprises currency, checking accounts, savings deposits, small time
roughly flat over the past six months.

Large increases in bank reserves brought about through central bank
loans or purchases of securities are a characteristic feature of the
unconventional policy approach known as quantitative easing. The idea
behind quantitative easing is to provide banks with substantial excess
principle both raise asset prices and increase the growth of broad
measures of money, which may in turn induce households and businesses
quantitative-easing regime, the quantity of central bank liabilities
liabilities) is sufficient to describe the degree of policy

Although the Federal Reserve's approach also entails substantial
increase the liabilities of the Federal Reserve than by the need to
address dysfunction in specific credit markets through the types of
this approach "credit easing."11
side of the balance sheet than the liability side, and the
effectiveness of policy support is measured by indicators of market
functioning, such as interest rate spreads, volatility, and market
liquidity. In particular, the Federal Reserve has not attempted to
common feature of the quantitative-easing approach.

Exit Strategy
colleagues at the Federal Reserve and I believe that accommodative
policies will likely be warranted for an extended period. At some
tighten monetary policy to prevent the emergence of an inflation
problem down the road. Looking at the Federal Reserve's balance sheet

could find it profitable to be more aggressive in lending out their
reserves, which in turn would produce faster growth in broader money
substantially reduce excess reserve balances or, if they remain,
neutralize their potential effects on broader measures of money and
credit and thus on aggregate demand and inflation.

To some extent, excess reserves will automatically contract as
improving financial conditions lead to reduced use of our special
already noted, the amount of credit outstanding in the first two
categories of assets (short-term lending to financial institutions and
targeted lending programs) has already declined substantially, from
Federal Reserve mature or are prepaid.

two broad means of tightening monetary policy at the appropriate
time--paying interest on reserve balances and taking various actions
these approaches alone; however, to ensure effectiveness, we likely
would use both in combination.

The Congress granted us authority last fall to pay interest on
the rate paid on reserve balances also discourages excessive growth in
at rates below what they can earn at the Fed. Considerable
international experience suggests that paying interest on reserves is
operations have substantially increased its balance sheet, the
overnight interbank rate has remained at or above the ECB's deposit
central banks have also used their ability to pay interest on reserves
to maintain a floor under short-term market rates.

Although, in principle, the ability to pay interest on reserves
should be sufficient to allow the Federal Reserve to raise interest
effective if combined with steps to reduce excess reserves. I will
mention three options for achieving such an outcome.

First, the Federal Reserve could drain bank reserves and reduce the
excess liquidity at other institutions by arranging large-scale reverse
repurchase agreements (reverse repos) with financial market
participants, including banks, the GSEs, and other institutions.
monetary policy implementation, involve the sale by the Federal Reserve
of securities from its portfolio with an agreement to buy the
banks, roughly analogous to the certificates of deposit that banks
Federal Reserve would not be available to be supplied to the federal
funds market. Third, the Federal Reserve could reduce reserves by
interest rates and limit the growth of broad measures of money and
credit, thereby tightening monetary policy.

Overall, the Federal Reserve has a wide range of tools for
tightening monetary policy when the economic outlook requires us to do
maximum employment and price stability.

By using our balance sheet, the Federal Reserve
policy posed by dysfunctional credit markets and by the zero lower
bound on the federal funds rate target. By improving credit market
functioning and adding liquidity to the system, our programs have
provided critical support to the financial system and the economy.
Moreover, we have carried out these programs responsibly, with minimal
credit risk and with close attention to the exit strategy. Our
activities have resulted in substantial changes to the size and
composition of our balance sheet. When the economic outlook has
improved sufficiently, we will be prepared to tighten the stance of
monetary policy and eventually return our balance sheet to a more
normal configuration.




1. Ben S. Bernanke (2009), "The Federal Reserve's Balance Sheet,"
speech delivered at "Looking Forward: Rebuilding the Credit Markets."
the 2009 Credit Markets Symposium sponsored by the Federal Reserve Bank
of Richmond, held in Charlotte, N.C., April 2-3. Return to text

2. See "Credit and Liquidity Programs and the Balance Sheet." Return to text

3. The Federal Reserve publishes its balance sheet
each week, typically around 4:30 p.m. Thursday. The balance sheet is
included in the Federal Reserve's H.4.1 Statistical Release, "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks." Return to text

speech delivered at "Financial Stability and Macroeconomic Policy," a
Jackson Hole, Wyo., August 20-22; and Ben S. Bernanke (2008), "Liquidity Provision by the Federal Reserve,"
speech delivered (via satellite) at the Financial Markets Conference
sponsored by the Federal Reserve Bank of Atlanta, held in Sea Island,
Ga., May 13. Return to text


6. The programs for money market funds are the
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity
Facility, or AMLF, and the Money Market Investor Funding Facility, or
MMIFF. Return to text

7. The shutdown of these markets was traced, in
part, to broad concerns about the risks of structured products,
particularly those backed by nonprime mortgages. In addition, these
difficulties were linked to the evaporation of liquidity from
short-term credit markets. In the years leading up to the financial
crisis, market participants increasingly used short-term debt to fund
the purchase of highly rated tranches of securitizations, in some cases
with little or no liquidity support. As a result, when short-term
credit markets froze, the demand for highly rated tranches of
securitizations dropped. Return to text

8. See Board of Governors of the Federal Reserve System (2008), "Federal
Reserve Announces It Will Initiate a Program to Purchase the Direct
Obligations of Housing-Related Government-Sponsored Enterprises and
Ginnie Mae
," press release, November 25; and Board of Governors of the Federal Reserve System (2009), "FOMC Statement," press release, March 18. Return to text

9. Board of Governors of the Federal Reserve System (2009), "FOMC Statement," press release, September 23. Return to text

10. Reserves can also be held in the form of vault cash. Return to text

11. See Ben S. Bernanke (2009), "The Crisis and the Policy Response," speech delivered at the Stamp Lecture, London School of Economics, London, England, January 13; and Ben S. Bernanke (2009), "Federal Reserve Policies to Ease Credit and Their Implications for the Fed's Balance Sheet," speech delivered at the National Press Club Luncheon, National Press Club, Washington, D.C., February 18. Return to text

Comment viewing options

lizzy36's picture

Executive Summary: yadda, yadda, yadda.

deadhead's picture

I didn't read the report. I don't need to.  I already have an idea of what is on the balance sheet and some suspicions about what is on the balance sheet but cannot be proven unless the Fed has a thorough audit.

That said, my conclusion is that like geithner, paulson, the cheat street gang, I will believe Bernanke the day that I see wild hungry hyenas nursing an injured 3 legged baby zebra back to health.


AN0NYM0US's picture

If you have not viewed Bloomberg TV recently their Mid Morning broadcast has been re Vamped - the bad news is Kathleen Hayes (Liesman's sibling? Kneales's twin?) has her own show at 1pm (except today she is interviewing Ron Paul which should be bizarre)

Bloomberg Television
buzzsaw99's picture

Good thing I'm a speed reader, sheesh! The zero percent lower bound is a misnomer as the fed is paying interest on borrowed reserves to the gangstas.

Ducky's picture

By quickly taking a lot of the credit onto the balance sheet the fed was hoping it would avoid a Japan-like outcome.

When we keep hearing about bad real estate loans being rolled over in pure hope of better of a brighter future it seems more and more like we are, at best, headed for that outcome.

So when Dick Bove keeps coming out and upgrading banks I keeping wishing they would have Soros there to ask him why he believes these banks are solvent.

Stevm30's picture

Oh yeah the credit markets, THEY are where the disfunction lies...

MsCreant's picture

Exit Strategy:

*Find non-extradition country

*Set up accounts in non-extradition country

*Buy Gold and Platinum


  • Ben Bikini
  • Jeans
  • Binki
  • Flip flops
  • 7 teeshirts
  • Black book
  • 7 Undies
  • 7 pair Socks
  • Running shoes (wear a pair also)
  • Gucci loafers
  • DOP kit

*Shave head and beard

*Get tattoos and piercings

*Create alternative identity passports

*Haul ass

Anonymous's picture

Adjusted monetary base has just hit all time high of $1884 Billion this week

Stevm30's picture

I also loved how during his Q&A NOBODY asked him to comment about the lawsuit from Bloomberg and/or why he's not willing to open the FED's books to the public.  Our media: true public servants.

Miles Kendig's picture

To those who postulate that ZH fails to provide space to various points of view I ask, is this posting:

A, One more ZH conspiracy theory.

B. One more foul use of the equal time doctrine.

C. One more central bank conspiracy theory.

D. A fair and balanced presentation of the activities of the US central bank.

E. A quality representation of the new spirit transparency in government promised by the administration.


Anonymous's picture

Why even look? The Fed balance sheet is filled with "values" for utterly toxic assets, which can't be marked to market.

These books are as cooked as they possibly can be.

FNM and FRE bonds? LOL? The only thing that's truly remarkable at this time is that Bernanke has apparently bamboozled the other foreign central banks. If they only knew that it was only hot air behind our currency... because if they did they'd be unwinding as fast as they possibly could. There is no way -- no possible way -- the dollar survives this. History is chock full of similar situations. They all ended badly. Every last one.

Anonymous's picture


they do know. they can't unwind quickly because that would mean the end of them as well.

but unwinding they are, believe it.

Anonymous's picture

By the way, for those unaccustomed to reading Fed balance sheets -- the number that should be jumping of the page is: GSE-related securities: $824 (vs. $0 in 2007)

Not only is this a historically unprecedented development, but it is outright illegal under the Federal Reserve Act.

(See if you need more info on this subject.)

Anonymous's picture

Since Fannie and Freddie were taken into conservatorship by FHFA, does that mean the USG has guaranteed those bonds and that is why the Fed thinks it can buy the bonds?

Anonymous's picture

Since Fannie and Freddie were taken into conservatorship by the FHFA, does that mean the USG has guaranteed these bonds?

digalert's picture

Was it "responsible" or reckless abandon?

Anonymous's picture

they aren't worried about the exit strategy because they know damn well that their actions will not lead to a stable economy

Anonymous's picture

The level of disaster the US is to face depends mostly on whether one of the couple of remaining strengths shows up very soon, which seems highly unlikely at this point, or definitely vanishes.... I am referring to the existence of checks and balances.

Anonymous's picture


rhinotrader's picture

Why bother reading this? They only give you what they want you to see. The perception there selling, is reality in market. We won't know the vicarius position that we were/are in until 10 years from now. The Gov't is much, much more powerful than I ever thought. Has anyone ever seen the market so manipulated for this long? 1 day to a 1 month maybe, but 6 months? A 50-70% rally? Getting to the point that maybe this type of Socialism works better then Capitalism for the markets. Is there anything that can bring this market down?

Anonymous's picture

Yes. There are several issues that can, and actually are going to, stop what is going on. Problem is, whether I think it is going to be between today and 2 years from now... it could take even longer... which means that from investing/trading purposes the certainty that what is going on is to be stopped... is kinda useless...

Assetman's picture

Why bother reading this?  Because it represents the Fed's poor attempts at transparency and accountability.

After reading this, one should ask: "If you were to mark to market the Fed's purchased assets today, what would they be worth?"

It's really simple accounting.  The liabilities that the Fed has ballooned in the form of reserves are highly likely worth much more than the assets they purchased-- and still continue to purchase. 

The reality is that the Fed is in an "insolvent" situation, the same way member banks are "insolvent".  In both cases, both entities remain solvent only bacause assets are not being market to market.  And there seems to be no hurry in doing so...

TALF is a sham, despite the Fed claming "minimal credit risk" because the Treasury has promised to "provide cover" for collateral that is actually "bad" when it "seemed good" when the Fed made its loans.

The Fed is also claiming "minimal credit risk" on its Agency and MBS purchases-- even though the assets are likely worth much less that what was paid for them.  At some point, the Fed will need to sell those assets-- and some entity supported by the taxpayer will need to step up and "provide cover" for these as well.  The Fed shouldn't be buying MBS at all.

This is precisely why the Fed needs to audited-- and soon.  While the Fed provides "information" here, we don't know the value of the toxic crap the Fed just bought-- nor do we know the prospects or the degree of payback on these assets. 

Sadly, the press doesn't appear smart enough to simply ask Uncle Ben if the market value of the assets on his bloated balance sheet are worth more than the liabilities assumed.   The (indirect and likely inaccurate) answer from our Chairman would no doubt make his voice quiver.

kevinearick's picture

to be fair:


increasing pressure, decreasing volume.

we call that a ....


watch tax receipts.

bugs_'s picture

Note to self: Get bigger helicopter.

Anonymous's picture

Does anybody know the web addrees for WEEKLY Fed money supply data (or may be titled monetary base) - the actual numbers going back a while, not a chart.

It was on this site months ago, but can't find the link anymore.

andrew123's picture

Does the holiday on Monday mean that the usual source of liquidity won't be pumping ?

jm's picture

The Treasury market has had enough of this shit.  

Gilgamesh's picture

Debt ceiling?  What debt ceiling?  Let's crank these puppies out doubletime while we can still get away with it.  Pay no attention to yesterday's results.  Besides, bond selloff is bullish for the US!

JR's picture

As Gordon_Gekko says in comments to his blockbuster Gold and Economic Freedom: Did Greenspan Know What He Was Doing?,He [Greenspan] gave the bankers what they wanted…only too much of it!”  And Bernanke goes even further. Loyal servants both, but of whom?  Here is a revealing excerpt from “Greenspan's Grand Design To Serve the Money Trust - Financial Tsunami Part III”  by F_William Engdahl (2008) regarding The Long-Term Greenspan Agenda:

The stage was now set for the next phase in the Rockefeller financial deregulation agenda. It was to come in the form of a revolution in the very nature of what would be considered money—the Greenspan “New Finance” Revolution…through extraordinary feats of financial crisis management…the securitization revolution, the creation of a world of New Finance where risk would be detached from banks and spread across the globe to the point no one could identify where real risk lay…

Maestro serves the Money Trust

Alan Greenspan, as every Chairman of the Board of Governors of the Federal Reserve System, was a carefully-picked institutionally loyal servant of the actual owners of the Federal Reserve: the network of private banks, insurance companies, investment banks which created the Fed…

Greenspan's entire tenure as Fed chairman was dedicated to advancing the interests of American world financial domination in a nation whose national economic base was largely destroyed in the years following 1971.

Greenspan knew who buttered his bread and loyally served what the US Congress in 1913 termed “the Money Trust,” a cabal of financial leaders abusing their public trust to consolidate control over many industries.

Interestingly, many of the financial actors behind the 1913 creation of the Federal Reserve are pivotal in today's securitization revolution including Citibank, and J.P. Morgan. Both have share ownership of the key New York Federal Reserve Bank, the heart of the system.

Another little-known shareholder of the New York Fed is the Depository Trust Company (DTC), the largest central securities depository in the world. Based in New York , the DTC custodies more than 2.5 million US and non-US equity, corporate, and municipal debt securities issues from over 100 countries, valued at over $36 trillion. It and its affiliates handle over $1.5 quadrillion of securities transactions a year. That's not bad for a company that most people never heard of. The Depository Trust Company has a sole monopoly on such business in the USA . They simply bought up all other contenders. It suggests part of the reason New York was able for so long to dominate global financial markets, long after the American economy had become largely a hollowed-out “post-industrial” wasteland.

…[I]n reality there is a common thread running through each major financial crisis of his {Greenspan’s] 18 plus years as Fed chairman. He managed to use each successive financial crisis in his eighteen years as head of the world's most powerful financial institution to advance and consolidate the influence of US-centered finance over the global economy, almost always to the severe detriment of the economy and broad general welfare of the population.

In each case, be it the October 1987 stock crash, the 1997 Asia Crisis, the 1998 Russian state default and ensuing collapse of LTCM, to the refusal to make technical changes in Fed-controlled stock margin requirements to cool the stock bubble, to his encouragement of ARM variable rate mortgages (when he knew rates were at the bottom), Greenspan used the successive crises, most of which his widely-read commentaries and rate policies had spawned in the first place, to advance an agenda of globalization of risk and liberalization of market regulations to allow unhindered operation of the major financial institutions.

The Rolling Crises Game

…Unanswered at this juncture is whether Greenspan's securitization revolution was a “bridge too far,” spelling the end of the dollar and of dollar financial institutions' global dominance for decades or more to come… (end excerpt)

Other subheads: The 1987 Greenspan Paradigm, Destroying Glass-Steagall restrictions, Operation Rollback, ‘…strategies unimaginable a decade ago…,'** Greenspan's bubble and its consequences, The incredible March 2000 speech, Stocks on margin: Regulation T, On the margin.

** “The New York Times quoted Goldman Sachs chairman Lloyd Blankfein (in a June 2007 profile of Goldman Sachs, just weeks prior to the eruption of the sub-prime crisis)  on the new financial securitization, hedge fund and derivatives world: ‘We've come full circle, because this is exactly what the Rothschilds or J. P. Morgan, the bankers were doing in their heyday. What caused an aberration was the Glass-Steagall Act.’

Blankfein as most of Wall Street bankers and financial insiders saw the New Deal as an aberration, openly calling for return to the days of J. P. Morgan and other tycoons of the ‘Gilded Age' of abuses in the 1920's. Glass-Steagall, Blankfein's "aberration" was finally eliminated because of Bill Clinton.”


chumbawamba's picture

Keep adding to that balance sheet:

Coming Soon: $500 for Every Newborn?

I am Chumbawamba.

chumbawamba's picture

And then give yourselves extra time off for a job well done!

House cuts workweek to 2 1/2 days

Prophet of Wise's picture

Bill Clinton, Phillip Graham, Robert Rubin and John McCain.

Anonymous's picture

My favorite part:

"From a credit perspective, these emergency loans [to JPM and AIG] obviously carry more risk than traditional provisions of central bank liquidity. Two observations on this point are worth making: First, these loans amount to less than five percent of the Federal Reserve's balance sheet. Thus, Federal Reserve loans that are collateralized by riskier securities are quite small compared with our holdings of assets with little or no credit risk."

Yes, these "riskier securities" might be a small percentage of total assets, but the stated value ($101B) is double the Federal Reserve's $50B solvency margin (what was referred to as "capital"). Given that many of these loans are non-recourse, have questionable prospects of repayment and that loss severities in other credit-related instruments (CRE loans, ABS, AAA-rated CDO) are frequently in the 20% to 50%+, I have to think the Fed is or very close to being balance sheet insolvent. I am not sure it matters b/c it will always have sufficient liquidity, but it's a pretty scary thought all the same . . . .

Anonymous's picture

Everyone else needs a balance sheet; we use a pivot sheet:)