The Volcker Rule Is Great Public Policy!

No. not unattached.

 

I'm not sure what you mean

 

Of course if that was true you would have some evidence that it was true

 

How much money has the Federal Reserve lost by buying mortgage backed securities since 2008?

3 ANSWERS

Alex Song, Morgan Stanley, Bain Capital, Harvard Business School '15.
Updated Mar 7 2013
Edit: Found the exact answer: As of March 2013, they've made roughly $133bn.

Original answer:

If you're about talking about the Mortgage-backed Securities (MBS) they've bought through Quantitative Easing (i.e. QE1 and QE2), then they've probably made somewhere in the neighborhood of at least $50bn on their MBS portfolio since 2008. In all likelihood they've made way more than that.

For some recent info, see here: http://www.federalreserve.gov/ne...

The Federal Reserve Banks' 2011 estimated net income of $78.9 billion was derived primarily from $83.6 billion in interest income on securities acquired through open market operations (U.S. Department of Treasury securities, federal agency and Government Sponsored Enterprise (GSE) mortgage-backed securities, and GSE debt securities). Additional earnings were derived primarily from realized gains on the sale of U.S. Treasury securities of $2.3 billion, foreign currency gains of $152 million, and income from services of $479 million. The Reserve Banks had interest expense of $3.8 billion on depository institutions' reserve balances and term deposits.
Here's a chart showing how much money they've made over the last few years:


From that paragraph above, it looks like they made $83.6bn from interest payments alone. Very roughly, the Fed is currently holding about 2/3 Treasuries and 1/3 in Agency MBS in their SOMA portfolio, so just by some quick back-of-the-envelope math, about $28bn would have come from MBS. But the duration of the Treasury portfolio is also slightly longer than the MBS portfolio, so presumably the Treasuries paid more coupon. But on top of that, MBS generally yields more than Treasuries, duration-adjusted, so you'd have to tease out the full effects (I'm sure it's not that hard of an exercise, but I don't really have the tools to do that at the moment). Multiply $25bn by two (for 2010 and 2011). This is how I came up with the rough $50bn number above. That's the floor for how much they made.

You also have to take into consideration how much price appreciation there has been since the Fed decided to embark on QE1 and QE2 in Treasuries and MBS. Interest rates fell dramatically which meant Treasury prices have rallied maybe 15-20% in the last 3 years. Mortgages spreads have also tightened a good amount. If MBS prices have gone up just half of that of Treasuries (10%), then the Fed would currently be sitting on an unrealized price appreciation of about 800bn*10% = $80bn gain in its MBS portfolio. This is an underestimate since the Fed purchased over $1 trillion in agency MBS, but a lot of it has matured, so I haven't even counted that stuff.

Take what I say with a grain of salt since I'm just ballparking all my calculations, but I think order of magnitude should be roughly correct. Anyway, the point is that they're making money. And in all likelihood it's a lot of money.

Regarding the AIG/Maiden Lane MBS bailout (see my comment thread below with Eric), looks like the NY Fed completely sold out of their MBS position recently. They've not only recouped their entire $19.5bn "loan" (i.e. investment) on the Maiden Lane MBS purchases, but they also made a tidy $2.8bn profit. In this low interest rate environment, I'll take a 14% return any day of the week

Check out this link for more details: http://www.newyorkfed.org/newsev...
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A trillion is a thousand billion, and the fed infused the banks with 1.3 of these every year for for years and reports less than one months cash infusion as profit. Good job

 

Of course the deposits were used as collateral, why else would the commercial banks be in danger of collapsing when the investment portion of the businesses failed. They were mixed. They were mixed only because Glass was repealed

 

1) wrong Glass did not allow them to mix
2) if cash had been used banks probably would not have been in danger of failing.

 

yes it was a break ever effort as intended that averted a Great Depression and probably the end of capitalism

 

deposits that have to remain at the bank.

 

The reserve ratio?

 

oh come on you know he's beat you. Glass had nothing to do with recession. Only Occupy and Eliz.Warren would argue it did!! sorry!!

 

Yes.

 

The TBTF banks had no reserve ratios for some time post 2008

 

Perhaps a few more exclamation points will make your post valid

 

Of course if a logical argument would have made my post invalid you would not have been so afraid to present that argument.

 

. Merely increasing the percentage of required equity that banks must hold against their assets does not solve the problems that contributed to the 2008 crisis. Instead, increasing the percentage of required equity arguably amplifies those risks.