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> It only becomes a problem if the Fed overpays for the assets. Which is precisely what happened. Many of the toxic assets that are now on the fed balance she

by sheetjs 13y ago

> It only becomes a problem if the Fed overpays for the assets. Which is precisely what happened. Many of the toxic assets that are now on the fed balance sheet would have been close to worthless (if not completely worthless)

tedsanders 13y ago
Could you please clarify which assets you're talking about? Is it the Fed's MBS portfolio? So far your worry has not borne out. The Fed has been earning about $80 billion per year, and its MBS portfolio is worth about $1 trillion. http://www.economist.com/news/finance-and-economics/21570753-what-happens-when-fed-starts-losing-money-other-side-qe http://www.economist.com/news/finance-and-economics/21570753...
- deleted 13y ago
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dredmorbius 13y ago
I actually had the opportunity to ask this question of a regional FR Bank president a year or so back. Specifically: how does the Fed assess the value of the assets its buying? The answer was: they don't. They're bidding at auction, so to that extent, the value is market-based (banks with assets they think are valued over what the Fed is paying will withhold those assets), but to the extent that it's pretty much the Fed creating this market of and by itself, there's not much competition. The interest of the Fed isn't in buying valuable assets. It's in injecting liquidity, that is, cash, dollars, into the financial system. I've kicked myself for not having asked another question (how is the banking system supposed to work and lend when real returns on financial capital are negative), but the one I did ask and the answer I got were informative and illuminating to me. The question I didn't ask, it turns out, has been asked by others (though I need to track down specific instances). The declining real returns of investment is something that's been specifically noted, see Deloitte's Shift Index: http://www.forbes.com/sites/stevedenning/2012/01/25/shift-index-2011-the-most-important-business-study-ever/ http://www.forbes.com/sites/stevedenning/2012/01/25/shift-in... http://www.reddit.com/r/dredmorbius/comments/1y3z3n/the_shift_index_declining_roic_1965_2009_forbes/ http://www.reddit.com/r/dredmorbius/comments/1y3z3n/the_shif...

by sheetjs 13y ago

tedsanders 13y ago

Could you please clarify which assets you're talking about? Is it the Fed's MBS portfolio? So far your worry has not borne out. The Fed has been earning about $80 billion per year, and its MBS portfolio is worth about $1 trillion. http://www.economist.com/news/finance-and-economics/21570753-what-happens-when-fed-starts-losing-money-other-side-qe http://www.economist.com/news/finance-and-economics/21570753...

deleted 13y ago
[deleted]

dredmorbius 13y ago

I actually had the opportunity to ask this question of a regional FR Bank president a year or so back. Specifically: how does the Fed assess the value of the assets its buying? The answer was: they don't. They're bidding at auction, so to that extent, the value is market-based (banks with assets they think are valued over what the Fed is paying will withhold those assets), but to the extent that it's pretty much the Fed creating this market of and by itself, there's not much competition. The interest of the Fed isn't in buying valuable assets. It's in injecting liquidity, that is, cash, dollars, into the financial system. I've kicked myself for not having asked another question (how is the banking system supposed to work and lend when real returns on financial capital are negative), but the one I did ask and the answer I got were informative and illuminating to me. The question I didn't ask, it turns out, has been asked by others (though I need to track down specific instances). The declining real returns of investment is something that's been specifically noted, see Deloitte's Shift Index: http://www.forbes.com/sites/stevedenning/2012/01/25/shift-index-2011-the-most-important-business-study-ever/ http://www.forbes.com/sites/stevedenning/2012/01/25/shift-in... http://www.reddit.com/r/dredmorbius/comments/1y3z3n/the_shift_index_declining_roic_1965_2009_forbes/ http://www.reddit.com/r/dredmorbius/comments/1y3z3n/the_shif...