The Fed: Now the World's Largest Private Bank

by: Graham Summers November 17, 2008    

Graham Summers

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

How’s this for private?

Over the last year, the Fed’s balance sheet has exploded as it opened various lending windows and programs to Wall Street banks. All told, the Fed’s balance sheet has ballooned by $1.3 trillion year over year. And the rate of expansion is increasing. Last week alone the Fed added $142 billion!!!

Setting aside any specialized financial insights on these matters, you have to wonder whether it’s a good idea for a country’s central bank to buy up the garbage that rendered its private banking sector insolvent.

Indeed, it is hard to believe, but a mere 10 months ago commentators — including yours truly — made a big deal about the Fed taking on $30 billion worth of crummy mortgages and derivatives from Bear Stearns. However, since September 14, the Fed has gone on what can only be described as an orgy of lending: in the two months since that date, the Fed’s balance sheet has more than doubled in size.

What’s truly troubling is the fact that no one knows what the Fed is buying (including Bernanke). How could they? Wall Street has spent two years writing off roughly $500 billion in junk assets. How on earth could the Fed actually catalog and assess the quality of more than double this ($1.3 trillion) in a matter of two months? It’s simply not possible.

I’m not the only one asking this. Bloomberg News has filed a lawsuit against the Fed demanding that the latter reveal the assets on its balance sheet. Thus far, the Fed has refused to comply with requests for greater transparency, which is truly staggering when you consider that both Hank Paulson and Ben Bernanke were touting the need for transparency during their testimonies in request of $700 billion for the mega-bailout.

Indeed, the world’s largest, most powerful bank has now also become its most private.

And it’s doing it with public funds.

From what I can tell, the primary criticism against revealing the quality of the assets is that doing so could undermine investor confidence. Folks, anyone who has even a shred of confidence in the Federal Reserve at this point needs psychiatric care. The fact of the matter is that this entire crisis came about because we let Wall Street banks and others throw transparency and open market pricing out the window. We’re now finding out bit by bit that Wall Street and the vast majority of the financial system didn’t accurately price the garbage they were dealing/ trading.

And now the Federal Reserve — allegedly a market regulator — is employing the very same practices that bankrupted Wall Street. And we’re supposed to be assuaged by clowns like Barney Frank telling us that he spoke to Federal Reserve officials and they’re “pretty sure that [the assets] are OK.”

Pretty sure? OK? With this kind of financial oversight coming from Congress you have to wonder how we got into this mess in the first place.

Folks, the Fed’s moves affect all of us. If you haven’t contacted your local Representatives and Senators about this, do so now. This is your money — and your children’s and grandchildren’s — that they’re spending. The Federal Reserve was created for several purposes, but not one of them was to be a depository for Wall Street’s waste.

Related Articles

This article has 16 comments:

  •  
    Nov 17 05:08 PM
    Scary how there is no other comments here on this post. It's the stuff of revolutions but so few realize the true implications or how to effectively combat this.
    Reply | Link to Comment
  •  
    Nov 17 05:54 PM
    As Jim Rogers says, "America is out of control".

    jimrogers-investments....
    Reply | Link to Comment
  •  
    Nov 17 07:35 PM
    The conundrum is, the Fed is supposed to be the entity whose mandate is to regulate the banks and ensure the safety and efficiency of the payment system. It is also run in hybrid form by the government and the main private banks. And it is a private bank itself too.
    The easy way to bail itself out is to print money. How intelligently is it doing it? Time to re-read some history books. The big difference with the past are the computing and communications technologies available.

    Reply | Link to Comment
  •  
    Nov 17 08:10 PM
    Its time to nationalize the banking system!
    Reply | Link to Comment
  •  
    Nov 18 07:15 AM
    LaRouche is right. The FED should be reorganized under the bankruptcy laws. The jam will only get worse than it is today. It failed in its job to manage the economy except for tweeking rates which, due to economic momentum, didn't make much of a difference anyhow - we could have used a computer program instead. We need to also figure out how Sarbanes-Oxley failed to work. Corporate executives are now jumping out with the gold when SOX has 'criminal' penalties which should have these people spending that cash while in prison. These frauds didn't occur overnight. Surely not all the perpetrators were innocent due to feeble mindedness - we need to penalize the crooks or they'll develop another loophole like the current scam being played out on the american people.
    Reply | Link to Comment
  •  
    Nov 18 09:50 AM
    iThinkBig:

    There is no way to combat it. None at all. It is so far out of control that nothing can be done to stop the absolute collapse.

    The only thing to be done, as I'm sure you have, is to make every effort to protect your family from the worst of the difficulties that are about to overwhelm you.

    Plain and simple. If anyone has not yet made preparations for the collapse it is already too late.




    On Nov 17 05:08 PM iThinkBig wrote:

    > Scary how there is no other comments here on this post. It's the
    > stuff of revolutions but so few realize the true implications or
    > how to effectively combat this.
    Reply | Link to Comment
  •  
    Nov 18 10:26 AM
    any bets on when the US T-bond at AAA drops to A?
    Reply | Link to Comment
  •  
    Nov 18 10:48 AM
    On Nov 18 10:26 AM nickgogerty wrote:

    > any bets on when the US T-bond at AAA drops to A?

    Let's consider a similar example. A house is offered at $500,000 and is actually worth $300,000. There are two ways for this market to repair itself: the seller can reduce his asking price to something close to $300,000, or the value of the dollar can fall by 40%. In either case, the house becomes properly priced and can trade.

    The analogy here is, of course, the rating.
    Reply | Link to Comment
  •  
    Nov 18 01:56 PM
    <i>If anyone has not yet made preparations for the collapse it is already too late. </i><p> Untrue! The supermarkets are full of food. Gas stations have gas. Outdoor stores have equipment. Even gun stores still have guns (just not AR's and AKs) and ammunition in most calibers. Buying precious actual gold and silver is hard, but not impossible. I recently ordered 50 more silver 1oz coins at a decent price. Moving investments from more risky to less risky categories is still possible.

    It is absolutely NOT TOO LATE to prepare. No matter where you are you can, and should take steps like those above.
    Reply | Link to Comment
  •  
    Nov 18 02:18 PM
    CelticSlav:

    Indeed all those things are available. Yet, can you go to any number of stores today and buy TODAY all you and your family will need for five years? Everything? Can any middle class American family? Doubtful.

    Those things will help, certainly. However, what about training your mind?

    Are you prepared to kill your neighbor who wants your food or will rat you to the neighborhood?

    Training yourself in skills that allow you to keep what you have working?

    Learning about field medicine because it will be too unsafe to go to the hospital, both in terms of transport and the hospital being overwhelmed with terminal cases of things you don't want to contract?

    You can't go to a store and buy those skills today, tomorrow or in enough time to defend your very lives.

    If you aren't ready TODAY it is too late!

    On Nov 18 01:56 PM CelticSlav wrote:

    > <i>If anyone has not yet made preparations for the collapse it is
    > already too late. </i><p> Untrue! The supermarkets are full of
    > food. Gas stations have gas. Outdoor stores have equipment. Even
    > gun stores still have guns (just not AR's and AKs) and ammunition
    > in most calibers. Buying precious actual gold and silver is hard,
    > but not impossible. I recently ordered 50 more silver 1oz coins
    > at a decent price. Moving investments from more risky to less risky
    > categories is still possible.
    >
    > It is absolutely NOT TOO LATE to prepare. No matter where you are
    > you can, and should take steps like those above.
    Reply | Link to Comment
  •  
    Nov 18 03:47 PM
    Very well stated...however, my comment is regarding the title.

    The FED is a private bank. It is owned by private entities that have never been disclosed. I believe the US Government owns less than 1/3 of it this has been since it was started. You want a great history on it being started etc. Check out a video on google video or whatever called 'Money Masters' some pretty wicked history there.
    Reply | Link to Comment
  •  
    Nov 18 03:57 PM
    Indeed, Money Masters is an eye opener. Bankster types don't care for I imagine.


    On Nov 18 03:47 PM User 222991 wrote:

    > Very well stated...however, my comment is regarding the title.

    >
    >
    > The FED is a private bank. It is owned by private entities that have
    > never been disclosed. I believe the US Government owns less than
    > 1/3 of it this has been since it was started. You want a great history
    > on it being started etc. Check out a video on google video or whatever
    > called 'Money Masters' some pretty wicked history there.
    Reply | Link to Comment
  •  
    Nov 18 04:21 PM
    "Because I Say So" Valuation Is About To End.

    Remember What America Was Founded On.

    Prepare for the worst; Pray for the best.
    Reply | Link to Comment
  •  
    Nov 18 06:33 PM
    Doesn't look good but the us dollar is gaining strength. Amazing markets.
    Reply | Link to Comment
  •  
    Nov 18 07:39 PM
    Rep. Ron Paul asked Bernanke a direct question about whether the worl d central banks were discussing a new currency or a gold standard.Bernanke said there was some discussion about banks selling gold,but that was all.He was looking down at the table and his body language indicated he was lying...very strange exchange..
    Reply | Link to Comment
  •  
    Nov 19 12:18 AM
    landru.i-link-2.net/mo... Text called "Modern Money Mechanics"

    Or just Google it.
    Reply | Link to Comment
Top Rated Comment Streams:

Numbers are net rating-

See all Top 100 »
More by Graham Summers

Investment Resources
Money Management
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Government Policy
Bonds
Dollar/Currencies
Earnings