Texas congressman and leading libertarian politician Ron Paul has been vocal in efforts to have the Federal Reserve audited. Now, Barbara Hollingsworth writes for the Washington Examiner, more people might line up to support the idea.
[Robert] Romano quotes Euro Pacific Capital chief economist Michael Pento:
“Prior to the bursting of the credit bubble, the public was shocked to learn that our biggest investment banks were levered 30 to 1. When asset values fell, those banks were quickly wiped out. But now the Fed is holding many of the same types of assets and is levered 51 to 1! If the value of their portfolio were to fall by just 2% the Fed itself would be wiped out.”
What same types of assets, you may be wondering?
“The Fed has just $52.5 billion of capital to back its $2.7 trillion balance sheet, an equity cushion of just 2 percent,” Pento writes. “Over $917 billion of that balance sheet is in mortgage-backed securities…”
Mortgage-based securities! The same paper that helped crash the housing market and then tanked the entire U.S. economy? And with still-declining home prices in most U.S markets, still a lousy investment?
Yup. In fact, Pento says, the Fed now holds more mortgage-backed securities than the total of its entire balance sheet before the 2008 housing crash.
And because of the Fed’s policy of booking losses as Treasury liabilities, U.S. taxpayers are on the hook if the central bank ever goes belly-up.
