When all you read is gloom, turn here for a much different perspective.

Tuesday, January 12, 2010

Record Fed Kickback: Taxpayers Get $46.1B

The Federal Reserve paid a record $46.1 billion to the U.S. Treasury in 2009 increasing by $14.4 billion its 2008 payment. It was the largest payment since the central bank was created in 1914. Its total 2009 net income of $52.1 billion also was a record.

"This is a silver lining in that big cloud of the Fed having to intervene massively and expand its balance sheet. " said Nariman Behravesh, chief economist of Global Insight.

Fed Chairman Ben Bernanke and the Fed Board took unprecedented actions to prop up the financial system in the past year and a half. As their results continue to produce healthy outcomes, they now have the benefit of withering criticism from lawmakers bent of limiting the Fed's authority.

Interestingly most of it's income came from open-market buying of U.S. Treasury debt, debt of mortgage finance sources Fannie Mae (FNM.N) and Freddie Mac (FRE.N), and mortgage bonds and other securities. Additional portfolios hold a variety of assets from Bear Stearns, residential mortgage-backed securities, and collateralized debt obligations from AIG.

The holdings are being managed via a "long term" time horizon allowing them to be sold over an interval that maximizes their value.

This is perhaps one of the first significant results of our lesson last year on "how to turn toxic assets into gold." And so far Bernanke and the Fed are getting it just right.

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