Wednesday, January 18, 2012

The Fed's profits

A NY Times (Dealbook) post today by Steve Davidoff compares the Fed to a hedge fund.
NY Times: I call the Fed a hedge fund because it is operating like one, leveraging its balance sheet to earn huge profits. The main difference between a hedge fund and the Fed is that the Fed effectively creates its own money, so it doesn’t have any borrowing costs, meaning yet more profits.
A couple of points on this:

1. The profits of this "hedge fund" flow directly to the taxpayer.

2. This government "hedge fund" is at least profitable, as opposed to say Fannie Mae and Freddie Mac, who also have very leveraged balance sheets and cheap government supported funding. According to CBO those other "hedge funds" cost the US taxpayer over $300 billion.

Hat tip Susan Menke
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