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Author: MadCapitalist Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 737399  
Subject: Fed doesn't live by the rules it sets for banks Date: 12/5/2012 12:38 PM
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Fed doesn't live by the rules it sets for banks

"Michael Gibson, the Fed's director of the Division of Banking Supervision and Regulation, recently testified to Congress on imposing the Basel III capital rules on all U.S. banks. The Fed supports these rules.

Specifically, Mr. Gibson pointed out that Basel III requires unrealized losses on some securities to reduce the banks' regulatory capital as such losses already reduce their book net worth. In ironic contrast, the Fed itself, which owns $900 billion of mortgage-backed securities and $1.7 trillion of Treasury notes and bonds, never recognizes any unrealized losses in its capital accounts. The Fed sets its own accounting rules for itself, unlike anybody else.

But the Fed's accounting rules go far beyond this. Since 2011, upon realizing it might one day be facing losses on its now massive investment portfolio, the Fed has provided itself a handy rule by which even realized net losses would not affect the capital on their financial statements. Any such losses would be booked in a deferred asset account, instead of properly reducing retained earnings and net worth.

The Fed has a combined net worth of $55 billion, according to a recent report. Anywhere in the world, if you had $55 billion in capital, and then (for example) lost $55 billion, your capital would be zero. But under the Fed's own special accounting rule, if it lost $55 billion, its capital would still be $55 billion. If it lost $75 billion, its capital would still be $55 billion. If it lost $100 billion, its capital would still be $55 billion. It wouldn't, in reality, of course, but it would on the Fed's accounting books."

http://www.aei.org/article/economics/financial-services/bank...

Realized losses would be booked as an ASSET???

Taser!!!
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