Bernanke and Co. rake in the dough
Robert Murphy may think , but Mr. Bernanke鈥檚 outfit busted out an last year. All that paper the Fed sucked up onto its balance sheet during the financial crisis is now throwing off bookoo bucks. Under Bernanke鈥檚 guidance central banking is suddenly a growth industry, with Ben鈥檚 balance sheet now at $2.43 trillion, up $193 billion from 鈥�09. Three years ago were less than $900 million.
Amongst the assets Mr. Bernanke and Co. are shepherding include sub-prime mortgage bonds that once belonged to American International Group (AIG). The Wall Street Journal reports that AIG would like to repurchase these bonds as a part of its attempt to break free from government control through a public stock offering. 鈥淎head of that, AIG wants to be able to show investors it is putting its cash to work and boosting investment income in its insurance units,鈥� reports the WSJ鈥榮 Serena Ng.
The rub is that AIG is offering 53 cents on the dollar for the mortgage bonds. Maybe the Fed can do better in the marketplace. After all, AIG projects the 鈥淢aiden Lane II鈥� assets to yield from 8% to 10%. That鈥檚 pretty rich at a time the 10-year Treasury is throwing off 3.34%. But this isn鈥檛 the free market and achieving the best price is not always the goal. The 鈥渃entral bank will need to show it is doing well by the taxpayers,鈥� writes Ng.
Well yeah, but don鈥檛 the taxpayers own AIG? Of course, but it鈥檚 complicated. The Fed is worried that if these bonds are thrown into the marketplace it could sink the price of similar securities, 鈥渁n outcome that could hurt banks holding such securities.鈥� That鈥檚 because these banks are holding the sub-prime mortgage bonds on their balance sheets at values similar to what the Fed bought the Maiden Lane paper for鈥搈ore than 53 cents on the dollar.
So, despite his organization earning record profits, his growing his business beyond what anyone thought was possible, and having to make decisions where logic or market prices are not applicable, Chairman Bernanke . I鈥檒l bet he thinks that a joke.
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