That question arose from the fact that that amount disappeared from the Fed’s balance sheet last week in the line items covering loans to and equity investments in the broken AIG. The Fed’s balance sheet as it pertains to custodial accounts for FCBs also makes clear why the Fed was forced to announce yesterday that it would begin acquiring $100 billion of GSE paper and $500 billion of MBS directly. FCBs forced the Fed’s hand by pulling out of the mortgage securities market over the past 2 months. The end of 4 years of subsidy brought about the collapse of that market, just as predicted here in these pages. That left the Fed no choice but to step in on behalf of the American taxpayer and other future victims, as the bagholders of last resort.
There were many more interesting tidbits to be gleaned as I went through the Fed’s balance sheet with a fine toothed comb. There were lots of tangles, split ends and frizz, but there were a few strands that stood out. One of which is that the Fed still does not appear to be monetizing to any significant extent. The question that remains to be answered is how they are going to fund the coming $600 billion balance sheet expansion in mortgage securities. Monetize, or otherwise? Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.