17-03-2010, 06:12 PM
Beware the fabulous federal money machine
By Spencer Jakab
Financial Times
Published: February 26 2010 17:07
A group doesn't earn the nickname Goldmine Stacks in a city as blasé
about mammoth paydays as New York without some truly gaudy numbers.
Though its unofficial moniker reflects a mix of awe and envy from less
fortunate financiers and bile from the 99.9 per cent of Americans who
don't summer in the Hamptons, they should be concerning themselves
with an even more profitable financial institution.
This one's earnings sparked a few feel good headlines rather than
treatises on greed, in spite of the fact that it makes Goldman's
record $12bn profit look like chump change. But Americans should be
very concerned indeed about how and why it makes its money and what
happens when it stops.
Don't think about getting a decent pastrami and rye near this bank's
headquarters, which are 208 miles from Manhattan in sleepy Washington
DC. Unlike its New York brethren though, the Federal Reserve has a
literal licence to print money, minting some $52bn in profit last year
and paying $46bn in dividends to its shareholder, Uncle Sam. The most
profitable investment fund on the planet sits just a mile away. The US
Treasury's Troubled Asset Relief Programme's $4bn in profits since
inception puts most masters of the universe to shame.
The bosses of both institutions make $191,300, less than all but the
greenest Wall Streeter. Messrs Bernanke and Geithner thus escaped the
"fat cat" label in articles whose celebratory headlines blared: "Fed
posts record $52bn profit" and "Government to earn billions on bail-
outs". Unfortunately, they have much bigger problems such as
dismantling their unwanted profit centres without doing serious
economic damage.
"The man on the street doesn't understand the $46bn earned by the Fed
and given to the Treasury," laments David Kotok, chairman of
Cumberland Advisors.
Financial markets do, and it is making them increasingly skittish. The
Fed's profits stem largely from its purchase of mortgage securities, a
programme that is slated to end in about a month at some $1,250bn. The
first hurdle is weaning the market off this money-printing exercise.
That alone could lead to an unwelcome rise in mortgage costs. More
daunting will be soaking up the excess cash created before it sparks
inflation in the real economy.
The most straightforward and obvious method, selling the securities,
would be likely to crush the mortgage market while wiping out its
"profits" from the operation to date. Instead, it will be likely to
soak up the excess funding in the banking system – a delicate task
that could lower inflationary expectations and cement a recovery if
done right or spark deflation if botched.
Almost as troubling as the distortions that generated the Fed's
profits are those that fuelled headlines about the Treasury's bonanza.
The $4bn in gains so far on warrants and preferred dividends from
financial firms are likely to be swamped by substantial losses on the
remaining $130bn investment. Tarp is of course not a for-profit
enterprise.
Thus it has committed the cardinal sin for money managers of selling
its winners and doubling down on the losers in its portfolio like AIG
and GMAC. Its own projection of losses on those investments, along
with mortgage subsidies and debt unprofitably converted to equity in
bankrupt carmakers, is $117bn. Outside Tarp, losses on stakes in
mortgage groups Fannie Mae and Freddie Mac may reach about $175bn.
The issue is not so much the budget-busting nature of these losses but
the ability of financial institutions to withstand this prop's
removal. Smaller banks are still reeling. Regulators note that credit
contraction last quarter, the sixth in a row, accelerated, and they
project more bank failures in 2010 than last year. As for the mortgage
market, practically all lending now depends on Fannie, Freddie or
other government affiliates. Withdrawal of support could lead to a
fresh house price crash.
One of the few upbeat stories that average Americans are hearing about
the financial crisis, the fabulous federal money machine, could be a
precursor to its nastiest phase yet.
http://www.ft.com/cms/s/0/2250b77a-22f8-...ab49a.html
By Spencer Jakab
Financial Times
Published: February 26 2010 17:07
A group doesn't earn the nickname Goldmine Stacks in a city as blasé
about mammoth paydays as New York without some truly gaudy numbers.
Though its unofficial moniker reflects a mix of awe and envy from less
fortunate financiers and bile from the 99.9 per cent of Americans who
don't summer in the Hamptons, they should be concerning themselves
with an even more profitable financial institution.
This one's earnings sparked a few feel good headlines rather than
treatises on greed, in spite of the fact that it makes Goldman's
record $12bn profit look like chump change. But Americans should be
very concerned indeed about how and why it makes its money and what
happens when it stops.
Don't think about getting a decent pastrami and rye near this bank's
headquarters, which are 208 miles from Manhattan in sleepy Washington
DC. Unlike its New York brethren though, the Federal Reserve has a
literal licence to print money, minting some $52bn in profit last year
and paying $46bn in dividends to its shareholder, Uncle Sam. The most
profitable investment fund on the planet sits just a mile away. The US
Treasury's Troubled Asset Relief Programme's $4bn in profits since
inception puts most masters of the universe to shame.
The bosses of both institutions make $191,300, less than all but the
greenest Wall Streeter. Messrs Bernanke and Geithner thus escaped the
"fat cat" label in articles whose celebratory headlines blared: "Fed
posts record $52bn profit" and "Government to earn billions on bail-
outs". Unfortunately, they have much bigger problems such as
dismantling their unwanted profit centres without doing serious
economic damage.
"The man on the street doesn't understand the $46bn earned by the Fed
and given to the Treasury," laments David Kotok, chairman of
Cumberland Advisors.
Financial markets do, and it is making them increasingly skittish. The
Fed's profits stem largely from its purchase of mortgage securities, a
programme that is slated to end in about a month at some $1,250bn. The
first hurdle is weaning the market off this money-printing exercise.
That alone could lead to an unwelcome rise in mortgage costs. More
daunting will be soaking up the excess cash created before it sparks
inflation in the real economy.
The most straightforward and obvious method, selling the securities,
would be likely to crush the mortgage market while wiping out its
"profits" from the operation to date. Instead, it will be likely to
soak up the excess funding in the banking system – a delicate task
that could lower inflationary expectations and cement a recovery if
done right or spark deflation if botched.
Almost as troubling as the distortions that generated the Fed's
profits are those that fuelled headlines about the Treasury's bonanza.
The $4bn in gains so far on warrants and preferred dividends from
financial firms are likely to be swamped by substantial losses on the
remaining $130bn investment. Tarp is of course not a for-profit
enterprise.
Thus it has committed the cardinal sin for money managers of selling
its winners and doubling down on the losers in its portfolio like AIG
and GMAC. Its own projection of losses on those investments, along
with mortgage subsidies and debt unprofitably converted to equity in
bankrupt carmakers, is $117bn. Outside Tarp, losses on stakes in
mortgage groups Fannie Mae and Freddie Mac may reach about $175bn.
The issue is not so much the budget-busting nature of these losses but
the ability of financial institutions to withstand this prop's
removal. Smaller banks are still reeling. Regulators note that credit
contraction last quarter, the sixth in a row, accelerated, and they
project more bank failures in 2010 than last year. As for the mortgage
market, practically all lending now depends on Fannie, Freddie or
other government affiliates. Withdrawal of support could lead to a
fresh house price crash.
One of the few upbeat stories that average Americans are hearing about
the financial crisis, the fabulous federal money machine, could be a
precursor to its nastiest phase yet.
http://www.ft.com/cms/s/0/2250b77a-22f8-...ab49a.html
The shadow is a moral problem that challenges the whole ego-personality, for no one can become conscious of the shadow without considerable moral effort. To become conscious of it involves recognizing the dark aspects of the personality as present and real. This act is the essential condition for any kind of self-knowledge.
Carl Jung - Aion (1951). CW 9, Part II: P.14