category

Fed buys toxic slop from TBTF banks, faces problems. Imagine

castles-made-of-sand

The Fed bought so much toxic slop from the TBTF banks that it now may not be able to make its regular payments to Treasury.

This may be an “accounting issue” for the Fed, but they used our money to buy the toxic slop. Thus, it essentially was a ginormous transfer of money from the many to the few – and to what result. The TBTF banks are still insolvent (and arguably corrupt) and the problem has been transferred to the Fed.

Let’s use what I call “The Banana Republic Rule.” If a banana republic government acted in same way as our government, would we laugh and call it compromised? If so, then our government is compromised too.

The Fed is starting to prepare for a future PR nightmare

Although not an economic problem — as “losses” for a central bank are more of an accounting issue — there could be a PR problem when the Fed stops making payments to the Treasury from the interest income it receives on its bond portfolio.

I’d say this is more than a PR problem, think peasants in the streets with pitchforks. And being insolvent is not a problem for the Fed since they don’t have to play by the same accounting rules as the rest of us – thus, it would appear, the edifice of our entire financial system is based on sand.

Comments are closed.

Powered by WordPress. Designed by WooThemes