Federal Reserve dollars

[Guest]

[Excerpted from the supplement by Jmax of TV Computer Club.]


"You have got to listen to this video! Trillions are unaccounted for of Federal Reserve dollars and the person whose job description it is to 'watch' over this appears to know nothing.....or is it that she's afraid to tell where the $$$$ went???

http://www.silverbearcafe.com/private/05.09/mindingthestore.html"

[Guest]

23 people viewed this post without a comment! My stomach turned when I witnessed the gross incompetence of this lady? We are so sidetracked by the healthcare issue that, in the meantime, trillions seem to be "missing"!!

Come on Kahuna--- this is your territory--- am I blowing my cork over nothing?barf

[Guest]

I am usually not at a loss for words.........stunning incompetence comes to mind. Thanks....I think.....for the post.

[Guest]

23 people viewed this post without a comment! My stomach turned when I witnessed the gross incompetence of this lady? We are so sidetracked by the healthcare issue that, in the meantime, trillions seem to be "missing"!!

Come on Kahuna--- this is your territory--- am I blowing my cork over nothing?barf

Do you really think the viewers were "sidetracked" or do they feel horrible and helpless as to what can I do. This has been going on for years and years within the federal/state governments as well as industry, etc etc and my reaction is "pure greed."

I too felt as you did, rshoffer, along with such a helpless feeling. Kahuna has shared many great "fixes" but to enact them would take, ?????? Should we write the big "K" in on the next ticket? :shrug:

[Guest]

Do you really think the viewers were "sidetracked" or do they feel horrible and helpless as to what can I do. This has been going on for years and years within the federal/state governments as well as industry, etc etc and my reaction is "pure greed."

I too felt as you did, rshoffer, along with such a helpless feeling. Kahuna has shared many great "fixes" but to enact them would take, ?????? Should we write the big "K" in on the next ticket? :shrug:He must be golfing... I am going to bump this a few times if it falls off the radar.

[Guest]

...Kahuna has shared many great "fixes" but to enact them would take, ?????? Should we write the big "K" in on the next ticket?...Come on Kahuna--- this is your territory--- am I blowing my cork over nothing?barfWhat can I say? This lady is a career bureaucrat, with her final promotion to this job happening about three years ago. While the job of "Inspector General of the Federal Reserve" sounds important, I'm not so sure that it really is. I have no idea what the "Bloomberg article" alleges, but the questioner did say that it had to do with "off balance sheet transactions". Let's not also miss the fact that the Congressman doing the questioning was clearly trying to play some "gotcha" for the purpose of creating some sound-bites for his own benefit. He did, of course--we all looked at the video on YouTube.

The Federal Reserve doesn't operate under the same accounting rules as public corporations. In fact, I guess I don't know what rules they operate under, other than those dictated by the Congressional committees responsible for oversight of the Fed and whatever laws and regulations Congress has imposed on the agency.

This woman is clearly not experienced in testifying before members of Congress, even though the empty chairs and absence of an audience suggests that it was a minor or sub-committee hearing. Notwithstanding her high-sounding title, she probably shouldn't be pilloried for that shortcoming. If you recall, even the CEO's of the auto companies didn't exactly engender confidence with their testimonies and they have a helluva lot more experience dealing with the public and the press than this lady does.

Should she be familiar with the issues suggested by the Congressman and supposedly reported on Bloomberg? Yeah, she probably should have. Even if she doesn't have a Bloomberg monitor at her desk--she would have no reason to--some of her staff should have prepared her for the possibility of such a question.

Having thorough answers to questions regarding the off-balance sheet transactions is another issue. In the end, she works for the Chairman or the Federal Reserve. Her job description says, that she "leads a staff responsible for promoting economy, efficiency, and effectiveness within Board programs and operations. The Office of Inspector General (OIG) is also responsible for preventing and detecting waste, fraud, and abuse at the Board, among other duties. The OIG achieves its legislative mandate through audits, evaluations, investigations, legislative reviews, and by keeping the Chairman of the Board and Congress fully informed."

The OIG probably has a series of regular audits that the department conducts. Beyond that, she would do the bidding of the Fed Chairman and the responsible committees of the Congress. She probably shouldn't take all the heat for not being the "Carnac of the Fed"--all-seeing and all-knowing. In the end, the OIG is a bureaucrat and does what she is told.

I'm not defending the lady at all. She really did look pretty helpless. But what I am saying is that if there really is something "off balance sheet" that should be investigated, the responsibility for ordering such an inquiry is as much the responsibility of the Fed Chairman and Congress as it is hers.

Using a corporate analogy, we didn't and probaby shouldn't have placed total blame for the Enron collapse on the chief auditor of the company. There were audit commitees of the board, senior management, outside auditors and financial analysts that shared the blame for that situation. In the same way, if there really is something wrong at the Fed, the OIG is partially responsible, but shouldn't bear the total blame if something is really amiss.

[Guest]

To better understand the role of the Office of The Inspector General of the Federal Reserve, please review the OIG's Semiannual Report to Congress: October 1, 2008--March 31, 2009 (http://www.federalreserve.gov/oig/sar_october_1_2008_march_31_2009.htm#6063).

The FRB OIG is authorized a total staff of 49 people, some positions of which are unfilled, and at least 11 of which are section chiefs or senior managers, and 28 are auditors and investigators. That's not a lot of staff considering all that is on the OIG's plate.

It is normal for the Office Head to appear before Congress some time after submission of an annual or semi-annual report. The date of the tape (05/08/09) would seem to indicate the appearance may have been in consonance with the semi-annual report. If that's the case, Ms. Coleman would have been testifying before the committee to answer questions regarding the semi-annual report and not broad-brush questions.

The next step in the process is for the Congressperson to issue "Questions For The Record" (QFR) and the agency (e.g., FRB) would have normally around ten days to respond to the QFR. If the questions heard on the tape were presented to the FRB OIG as QFRs (don't you love all these acronyms?), then he would have his answers in writing. Any move by the public to get those answers can only occur by soliciting from the Congressperson and that committee for the answers, or filing a Freedom of Information Act request to the FRB OIG.

So, there may be more to all of this than the short video and the impression it left.

[Guest]

To better understand the role of the Office of The Inspector General of the Federal Reserve, please review the OIG's Semiannual Report to Congress: October 1, 2008--March 31, 2009 (http://www.federalreserve.gov/oig/sar_october_1_2008_march_31_2009.htm#6063).

The FRB OIG is authorized a total staff of 49 people, some positions of which are unfilled, and at least 11 of which are section chiefs or senior managers, and 28 are auditors and investigators. That's not a lot of staff considering all that is on the OIG's plate.

It is normal for the Office Head to appear before Congress some time after submission of an annual or semi-annual report. The date of the tape (05/08/09) would seem to indicate the appearance may have been in consonance with the semi-annual report. If that's the case, Ms. Coleman would have been testifying before the committee to answer questions regarding the semi-annual report and not broad-brush questions.

The next step in the process is for the Congressperson to issue "Questions For The Record" (QFR) and the agency (e.g., FRB) would have normally around ten days to respond to the QFR. If the questions heard on the tape were presented to the FRB OIG as QFRs (don't you love all these acronyms?), then he would have his answers in writing. Any move by the public to get those answers can only occur by soliciting from the Congressperson and that committee for the answers, or filing a Freedom of Information Act request to the FRB OIG.

So, there may be more to all of this than the short video and the impression it left.


Perhaps this applies ???

"Congressman Grayson demanded details from Bernanke on a half trillion dollars in liquidity swaps to foreign central banks undertaken by the Federal Reserve, apparently under the radar and in the dead of night. Demonstrating that he and his staff had done their fact-checking, Grayson noted that in 2007 these swaps with overseas central banks were a mere $24 billion, but had swelled to a staggering $553 billion in 2008 with the onset of the Global Economic Crisis."

"The exchange between Grayson and Bernanke appears almost Kafkaesque in its reality-defying character, conveyed in the following, as a clearly uncomfortable Fed Chairman provides a tortured explanation regarding this half trillion dollar transaction:





Bernanke: "Those are swaps that were done with foreign central banks..."
Grayson: "So who got the money?"
Bernanke: "Financial institutions in Europe and other countries..."
Grayson: "Which ones?"
Bernanke: "I don't know."
Grayson: "Half a trillion dollars and you don't know who got the money?"
Bernanke: "Um, um, the loans go to the central banks and they then put them out to their institutions..."

And then this...

"However, the historical record, especially in the last 20 years, clearly shows that the Federal Reserve is influenced politically, either through the executive branch and the power of the President to reappoint the Fed Chairman, or through the large financial institutions on Wall Street, which have a level of access to Fed decision-making not available to any other category of citizens. More importantly, since the onset of the current financial and economic crisis, the Federal Reserve and its chairman have proven to be highly fallible, having made many errors in judgment, not the least being their original overly-optimistic pronouncements when the first tremors from the sub-prime meltdown arose."

http://www.huffingtonpost.com/sheldon-filger/fed-chairman-bernanke-to_b_243795.html


Thanks for all the posts...I have learned quite a bit reading !

[Guest]

"Congressman Grayson demanded details from Bernanke on a half trillion dollars in liquidity swaps to foreign central banks undertaken by the Federal Reserve, apparently under the radar and in the dead of night....
No, Bucco, a half a trillion dollars in swaps doesn't happen in "under the radar". There are two parties to a swap, and as you have determined, one was the U.S Federal Reserve Bank and the others were the central banks of other sovereign nations. Believe me when I tell you that people on the swaps desks at virtually every major financial institution in the world knew that the Fed executed those swaps, within minutes after they were executed.

The Federal Open Market Committee (FOMC, the committee chaired by the Fed Chairman and made up of the presidents of the Federal reserve banks, that sets interest rates and monetary policy for the country) authorized temporary reciprocal currency arrangements (central bank liquidity swaps) with the European Central Bank and the Swiss National Bank to help provide liquidity in U.S. dollars to overseas markets. Subsequently, the FOMC authorized liquidity swap lines with additional central banks throughout the world. The swap lines are designed to improve liquidity conditions in U.S. and foreign financial markets by providing foreign central banks with the capacity to deliver U.S. dollar funding to institutions in their jurisdictions during times of market stress. Certainly we would all agree that we're currently in a period of financial market stress.

I'm not sure there was anything "Kafkaesque" about the exchange between the Fed Chairman and Congressman Grayson (meaning "marked by surreal distortion and a sense of impending danger"). The nominal financial exposure resulting from a liquidity swap is a very small proportion of the face value of the swap, associated mostly with foreign exchange ates between the two currencies involved.

Let's put things in perspective...
Half a trillion dollars is a lot of money, and Congressman Grayson made it sound that way. But from the perspective of the Chairman of the Federal Reserve Bank, it's not much more than the pea under the mattress as in the play "The Princess And The Pea".
The Fed Chairman is charged with the responsibility of managing an economy which generates somewhere in the range of $3.5 trillion dollars in GDP per year. Half a trillion is 14% of that amount. But the actual exposure created by executing half a trillion dollars in liquidity swaps is far less than that amount, as I explained above.
The total amount if U.S. debt outstanding is currently about $11.6 trillion. Half a trillion is 4% of that amount, again far less on a nominal basis.
Congressman Grayson, looking for an opportunity to get a soundbite on TV, asks the Fed Chairman a question about a series of financial transactions with other central banks that were so small relative to his total responsibility that no reasonable person would expect the Fed Chairman to be able to answer the question in detail. That is particularly true given that the exposure was the result of liquidity swaps executed with a number of other foreign nations, a fairly routine transaction for the Federal Reserve Bank to undertake. Even the Huffington Post got on the bandwagon, trying to make a mountain out of a publicly announced and a series of fairly routine transactions by totaling them up and writing about the total of the swaps executed.

Why the significant increase in the use of liquidity swaps in 2009 compared to 2007? Does anyone think that the economic circumstances are the same now as in 2007? Does anyone believe that the liquidity of the financial markets is the same? Is it reasonable for the Fed Chairman and the presidents of the Federal Reserve banks to authorize these transactions for the benefit of market liquidity and for the benefit of those doing business in U.S. dollars? Don't forget that all the oil purchased in the world by all countries and all users is paid for in U.S. dollars. (OPEC requires payment in U.S. dollars.) If there is a tightening of liquidity in our currency, oil stops flowing really quickly.

"Under the radar", "in the dead of night", "Kafkaesque"...those are laughable terms to describe the exchange between the Fed Chairman and a publicity-seeking Congressman over a fairly routine transaction that while designed to benefit the U.S., is not significant in the grand scheme of things at the Federal Reserve Bank of the U.S.

Regarding the "dead of night" term...of course the transactions occurred in the dead of night. If the swaps were put in place at 4:00 PM Washington time, that's about 10-11:00 PM in Europe, early morning in the Far East. The "dead of night"...of course it was in the dead of night. Like Jimmy Buffett says, "It's always five o'clock somewhwere."

I think what we have here is a congressman trying to get some TV face time moreso than any kind of impending financial doom caused by the U.S. Federal Reserve Bank.

[Guest]

It looks like the participants on this forum have moved on to other things, this discussion of arcane financial issues not being quite as emotionally invigorating as other things discussed here. But I thought I'd provide just a little more information, just incase someone new stumbles into this thread and doesn't get enough information to understand what the subject is about.

The subject was central bank liquidity swaps and the initial allegation was that hundreds of billions of dollars were misappropriated by the Federal Reserve in the dark of night and with no one knowing exactly where the money is.

Central bank liquidity swaps involve two transactions. When a foreign central bank draws on its swap line with the Federal Reserve, the foreign central bank sells a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate. The Federal Reserve holds the foreign currency in an account at the foreign central bank. The dollars that the Federal Reserve provides are deposited in an account that the foreign central bank maintains at the Federal Reserve Bank of New York. At the same time, the Federal Reserve and the foreign central bank enter into a binding agreement for a second transaction that obligates the foreign central bank to buy back its currency on a specified future date at the same exchange rate. The second transaction unwinds the first. At the conclusion of the second transaction, the foreign central bank pays interest, at a market-based rate, to the Federal Reserve.

When the foreign central bank lends the dollars it obtained by drawing on its swap line to institutions in its jurisdiction, the dollars are transferred from the foreign central bank's account at the Federal Reserve to the account of the bank that the borrowing institution uses to clear its dollar transactions. The foreign central bank remains obligated to return the dollars to the Federal Reserve under the terms of the agreement, and the Federal Reserve is not a counterparty to the loan extended by the foreign central bank. The foreign central bank bears the credit risk associated with the loans it makes to institutions in its jurisdiction.

The foreign currency that the Federal Reserve acquires is an asset on the Federal Reserve's balance sheet. The dollar value of amounts that the foreign central banks have drawn but not yet repaid is fully reported in the financial records maintained by The Federal Reserve. Because the swap will be unwound at the same exchange rate that was used in the initial draw, the dollar value of the asset is not affected by changes in the market exchange rate. The dollar funds deposited in the accounts that foreign central banks maintain at the Federal Reserve Bank of New York are a Federal Reserve liability. The foreign central banks generally lend the dollars shortly after drawing on the swap line.

When a foreign central bank draws on its swap line to fund its dollar tender operations, it pays interest to the Federal Reserve in an amount equal to the interest the foreign central bank earns on its tender operations. The Federal Reserve holds the foreign currency that it acquires in the swap transaction at the foreign central bank (rather than lending it or investing it in private markets) and does not pay interest.

The Federal Reserve Board issues a weekly release that includes information on the aggregate value of swap drawings outstanding. With the onset of the Global financial crisis of 2008–2009 and the collapse of Lehman Brothers on September 15, 2008, the balance grew rapidly. As of April 2009 the balance was $293,533 million. Central bank liquidity swaps have maturities ranging from overnight to three months.
-------------------------------------
So let's cut to the chase here. A half trillion dollars was never "missing" from the Federal Reserve. Nor was it stolen away in the dead of night. These transactions were authorized by the Federal Open Market Committee and were executed for the purpose of providing liquidity in U.S. dollars in foreign markets, nothing more, nothing less. The only "risk" incurred by the Fed is that the foreign central bank who is the counterparty to the liquidity swap would fail to return the U.S. dollars held in their institution back to the Fed in New York, a highly unlikely occurrence. The transactions are all properly recorded and the money fully accounted for, even though the Chairman of the Federal Reserve might not be intimately familiar with all of the swap transactions executed with all of the foreign central banks with whom the U.S. maintains relationships.

Hopefully, with this additional information we can now all get on with bashing one elected official or another, or one legislative bill or another--all far more satisfying emotional exercises.

[Guest]

It looks like the participants on this forum have moved on to other things, this discussion of arcane financial issues not being quite as emotionally invigorating as other things discussed here. But I thought I'd provide just a little more information, just incase someone new stumbles into this thread and doesn't get enough information to understand what the subject is about.

The subject was central bank liquidity swaps and the initial allegation was that hundreds of billions of dollars were misappropriated by the Federal Reserve in the dark of night and with no one knowing exactly where the money is.

Central bank liquidity swaps involve two transactions. When a foreign central bank draws on its swap line with the Federal Reserve, the foreign central bank sells a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate. The Federal Reserve holds the foreign currency in an account at the foreign central bank. The dollars that the Federal Reserve provides are deposited in an account that the foreign central bank maintains at the Federal Reserve Bank of New York. At the same time, the Federal Reserve and the foreign central bank enter into a binding agreement for a second transaction that obligates the foreign central bank to buy back its currency on a specified future date at the same exchange rate. The second transaction unwinds the first. At the conclusion of the second transaction, the foreign central bank pays interest, at a market-based rate, to the Federal Reserve.

When the foreign central bank lends the dollars it obtained by drawing on its swap line to institutions in its jurisdiction, the dollars are transferred from the foreign central bank's account at the Federal Reserve to the account of the bank that the borrowing institution uses to clear its dollar transactions. The foreign central bank remains obligated to return the dollars to the Federal Reserve under the terms of the agreement, and the Federal Reserve is not a counterparty to the loan extended by the foreign central bank. The foreign central bank bears the credit risk associated with the loans it makes to institutions in its jurisdiction.

The foreign currency that the Federal Reserve acquires is an asset on the Federal Reserve's balance sheet. The dollar value of amounts that the foreign central banks have drawn but not yet repaid is fully reported in the financial records maintained by The Federal Reserve. Because the swap will be unwound at the same exchange rate that was used in the initial draw, the dollar value of the asset is not affected by changes in the market exchange rate. The dollar funds deposited in the accounts that foreign central banks maintain at the Federal Reserve Bank of New York are a Federal Reserve liability. The foreign central banks generally lend the dollars shortly after drawing on the swap line.

When a foreign central bank draws on its swap line to fund its dollar tender operations, it pays interest to the Federal Reserve in an amount equal to the interest the foreign central bank earns on its tender operations. The Federal Reserve holds the foreign currency that it acquires in the swap transaction at the foreign central bank (rather than lending it or investing it in private markets) and does not pay interest.

The Federal Reserve Board issues a weekly release that includes information on the aggregate value of swap drawings outstanding. With the onset of the Global financial crisis of 2008–2009 and the collapse of Lehman Brothers on September 15, 2008, the balance grew rapidly. As of April 2009 the balance was $293,533 million. Central bank liquidity swaps have maturities ranging from overnight to three months.
-------------------------------------
So let's cut to the chase here. A half trillion dollars was never "missing" from the Federal Reserve. Nor was it stolen away in the dead of night. These transactions were authorized by the Federal Open Market Committee and were executed for the purpose of providing liquidity in U.S. dollars in foreign markets, nothing more, nothing less. The only "risk" incurred by the Fed is that the foreign central bank who is the counterparty to the liquidity swap would fail to return the U.S. dollars held in their institution back to the Fed in New York, a highly unlikely occurrence. The transactions are all properly recorded and the money fully accounted for, even though the Chairman of the Federal Reserve might not be intimately familiar with all of the swap transactions executed with all of the foreign central banks with whom the U.S. maintains relationships.

Hopefully, with this additional information we can now all get on with bashing one elected official or another, or one legislative bill or another--all far more satisfying emotional exercises.

Actually I learned something from the post VK and I thank you !

Now, dont get me wrong...it is not the stuff that will stimulate my dreams this evening, but on the other hand may stimulate me TO dream :) I am kidding...I read it a few times and thanks for the info !

Bottom line is with politicians...they will try and make a headline anyway they can and are very dangerous when they know not of what they speak !

[Guest]

Gee thanks so much VK, I think.

I sure hope that you really don't think that all can digest all of that explanation, however, it is very impressive and if one can break it down, it sure helps clarify the erroneous insuation made. We do appreciate your time and effort in clarifying the situation. Yes, very impressive.

Thanks again.....b

ps....I repeat.....I still think that you should be a "write-in" in '12.

[Guest]

Gee thanks so much VK, I think.

I sure hope that you really don't think that all can digest all of that explanation, however, it is very impressive and if one can break it down, it sure helps clarify the erroneous insuation made. We do appreciate your time and effort in clarifying the situation. Yes, very impressive. .

K, I guess I'm one of those "all" that barb1191 says struggled to "digest the explanation" you offered. However, I do understand polysyllabic expression and learned how to research in college when Hector was a pup..... although I concede that Google has made things a lot easier. Curiously, I didn't see any attribution in your post so I assumed it was original thought.

I was surprised to see that a good part of the post was "lifted" verbatim out of the Federal Reserves own site. Using that as the reference seems a little like asking O.J. Simpson to head the investigation into his wife's murder.

http://74.125.47.132/search?q=cache:voipLyHRnXsJ:www.federalreserve.gov/monetarypolicy/bst_liquidityswaps.htm+because+the+swap+will+be+un wound+at+the+same+exchange+rate+that+was+used+in+t he+initial+draw&cd=1&hl=en&ct=clnk&gl=us

I know you tempered the Federal Reserve article with your own knowledge and experience. I have always respected your professional expertise and seldom disagreed with you on matters of finance or economics. I've had fun and great cerebral exercise with you on our somewhat different political perspectives. I'm just not a big fan of cut and paste especially without attribution. Perhaps it was an oversight.

I believe all the members of this forum are educated, enlightened and fully capable of "digesting" what they read regardless of the source.

Have a great day in the Villages.

[Guest]

It looks like the participants on this forum have moved on to other things, this discussion of arcane financial issues not being quite as emotionally invigorating as other things discussed here. But I thought I'd provide just a little more information, just incase someone new stumbles into this thread and doesn't get enough information to understand what the subject is about.

The subject was central bank liquidity swaps and the initial allegation was that hundreds of billions of dollars were misappropriated by the Federal Reserve in the dark of night and with no one knowing exactly where the money is.

Central bank liquidity swaps involve two transactions. When a foreign central bank draws on its swap line with the Federal Reserve, the foreign central bank sells a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate. The Federal Reserve holds the foreign currency in an account at the foreign central bank. The dollars that the Federal Reserve provides are deposited in an account that the foreign central bank maintains at the Federal Reserve Bank of New York. At the same time, the Federal Reserve and the foreign central bank enter into a binding agreement for a second transaction that obligates the foreign central bank to buy back its currency on a specified future date at the same exchange rate. The second transaction unwinds the first. At the conclusion of the second transaction, the foreign central bank pays interest, at a market-based rate, to the Federal Reserve.

When the foreign central bank lends the dollars it obtained by drawing on its swap line to institutions in its jurisdiction, the dollars are transferred from the foreign central bank's account at the Federal Reserve to the account of the bank that the borrowing institution uses to clear its dollar transactions. The foreign central bank remains obligated to return the dollars to the Federal Reserve under the terms of the agreement, and the Federal Reserve is not a counterparty to the loan extended by the foreign central bank. The foreign central bank bears the credit risk associated with the loans it makes to institutions in its jurisdiction.

The foreign currency that the Federal Reserve acquires is an asset on the Federal Reserve's balance sheet. The dollar value of amounts that the foreign central banks have drawn but not yet repaid is fully reported in the financial records maintained by The Federal Reserve. Because the swap will be unwound at the same exchange rate that was used in the initial draw, the dollar value of the asset is not affected by changes in the market exchange rate. The dollar funds deposited in the accounts that foreign central banks maintain at the Federal Reserve Bank of New York are a Federal Reserve liability. The foreign central banks generally lend the dollars shortly after drawing on the swap line.

When a foreign central bank draws on its swap line to fund its dollar tender operations, it pays interest to the Federal Reserve in an amount equal to the interest the foreign central bank earns on its tender operations. The Federal Reserve holds the foreign currency that it acquires in the swap transaction at the foreign central bank (rather than lending it or investing it in private markets) and does not pay interest.

The Federal Reserve Board issues a weekly release that includes information on the aggregate value of swap drawings outstanding. With the onset of the Global financial crisis of 2008–2009 and the collapse of Lehman Brothers on September 15, 2008, the balance grew rapidly. As of April 2009 the balance was $293,533 million. Central bank liquidity swaps have maturities ranging from overnight to three months.
-------------------------------------
So let's cut to the chase here. A half trillion dollars was never "missing" from the Federal Reserve. Nor was it stolen away in the dead of night. These transactions were authorized by the Federal Open Market Committee and were executed for the purpose of providing liquidity in U.S. dollars in foreign markets, nothing more, nothing less. The only "risk" incurred by the Fed is that the foreign central bank who is the counterparty to the liquidity swap would fail to return the U.S. dollars held in their institution back to the Fed in New York, a highly unlikely occurrence. The transactions are all properly recorded and the money fully accounted for, even though the Chairman of the Federal Reserve might not be intimately familiar with all of the swap transactions executed with all of the foreign central banks with whom the U.S. maintains relationships.

Hopefully, with this additional information we can now all get on with bashing one elected official or another, or one legislative bill or another--all far more satisfying emotional exercises.

Thanks for the explanation. Just goes to show that when one action is taken out of context for the sake of "there's trouble in River City," the publicity of Comment #1 (printed on Pages 1 to 3) is far greater than Response to Comment #1 which is usually technically incomprehensible or too long in length for many reporters, and always buried on Page 27, if published at all.

Beware of politicians seeking headlines.

[Guest]

Congressman Dennis Kucinich, a democrat, has raised some interesting questions about TARP money currently residing in the Federal Reserve. What was the intent of TARP in the first place? Was it intended to free credit for small business to stimulate the economy and jobs? Was it to cover toxic assets? Was it to keep people in their homes? A good guess would be all of the above.

Kucinich raises the question of whether " the Fed is paying higher interest rates on term deposits in order to induce banks to keep money at the Fed rather than lend...” The Congressman observes, ""I think the vast majority of Americans would be outraged to learn their tax dollars were facilitating hoarding at the Fed and increased profit making for banks,”

This sounds like a great deal for banks and bankers if Kucinich's concerns are correct. Coincidental, if my memory serves me correctly, profits for banks were up in the last quarter.

http://www.clarksvilleonline.com/2009/07/23/congressman-kucinich-asks-%E2%80%98is-the-fed-paying-banks-not-to-loan-money%E2%80%99/

I know that the processes that govern banking are extraordinarily complex. That point was made extremely well in earlier posts. Kucinich cites this Bloomberg report,

Meanwhile, banks’ excess reserves at the Fed rose to a record $877.1 billion daily average in the two weeks ended May 20, from $2 billion a year earlier. Excess reserves — money available for lending that banks choose to leave with the Fed instead — averaged $743.9 billion in the first two weeks of this month. – Bloomberg.com

The facts seem to contradict Henry Paulson's hand-ringing admonition about the urgency of the bailouts. It appears that a substantial part of the $700+ billion in bailout funds still quietly resides in the Federal Reserve, distribution priorities seem to shift consistent with the latest crisis and apparently most banks are content to keep the funds at the Fed.

Do banks profit off the back of taxpayer dollars from this position? I really don't know but it raises suspicions.