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The Circle Bastiat

Bernanke and Co. rake in the dough

The Fed's profits are up $193 billion from 2009

By Douglas FrenchGuest blogger / March 23, 2011

Federal Reserve Chairman Ben Bernanke speaks at the Citizens Budget Commission Annual Dinner in New York on March 2, 2011. The Fed brought in almost $82 billion in profits last year.

Reuters / Shannon Stapleton / File

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Robert Murphy may think Ben Bernanke is a joke, but Mr. Bernanke’s outfit busted out an almost $82 billion in profits 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’s guidance central banking is suddenly a growth industry, with Ben’s balance sheet now at $2.43 trillion, up $193 billion from ’09. Three years ago the Fed’s footings were less than $900 million.

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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. “Ahead 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,” reports the WSJ‘s 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 “Maiden Lane II” assets to yield from 8% to 10%. That’s pretty rich at a time the 10-year Treasury is throwing off 3.34%. But this isn’t the free market and achieving the best price is not always the goal. The “central bank will need to show it is doing well by the taxpayers,” writes Ng.

Well yeah, but don’t the taxpayers own AIG? Of course, but it’s complicated. The Fed is worried that if these bonds are thrown into the marketplace it could sink the price of similar securities, “an outcome that could hurt banks holding such securities.” That’s 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–more 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 only makes around $200,000 a year. I’ll bet he thinks that a joke.

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