I guess you can make good by doing good.
The Federal Reserve has been intervening massively into the economy, in particular by buying mortgage bonds.
I was surprised to find that the Federal Reserve made an impressive profit by so doing.
But the Fed still could lose money on the huge amount of assets on its balance sheet when it starts selling them off in the coming years. Those assets include mortgage-backed securities from Fannie Mae and Freddie Mac, and assets purchased as part of the 2008 rescue of insurance giant American International Group and the Fed-engineered sale of Bear Stearns to JP Morgan Chase.
Senate Budget Committee Chairman Kent Conrad (D-N.D.) asked Bernanke Friday about the potential for large future losses for taxpayers when the Fed eventually reduces its balance sheet to historic levels.
“I don’t see that it’s likely,” Bernanke said. “And our records so far, not only in this program, but in all the lending and other special credit programs we’ve done … has been very positive from a perspective of returns to the Treasury.”
Based on the Fed’s valuation of its assets, the central bank is in the black on its investments. Most of the Fed’s income came from the purchases of mortgage-backed securities and U.S. Treasury securities. The Fed said it also earned $2.1 billion in interest from credit extended to AIG, as well as $1.3 billion in dividends from holdings in AIG subsidiaries AIA Aurora and ALICO Holdings.