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 catalogue 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.

Last 5 posts by Graham Summers

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