Cutting Through More Nonsense

http://www.huffingtonpost.com/2010/02/16/fed-president-great-depre_n_464760.html

>"when the Fed agrees to make a loan to a financial firm it does so knowing that if it sours, the loss ends up on the Fed's balance sheet. "It has every incentive to do a good job in assessing the borrower quality," Kocherlakota said."

The Fed creates all loans from the balance sheet of the American public. The risk of 'souring loans' is always carried by the taxpayers, not the shareholders of the Fed. The Federal Reserve itself cannot actually 'absorb' a loss on a bad loan, because the Fed corporation never contributes its own funds to these loans.

Every year, the supposedly 'non profit' Federal Reserve returns its annual profits to the Treasury. Here's the report from this past year:

"The Federal Reserve says it made a record profit of $46.1 billion last year. The windfall gets turned over to the U.S. Treasury."

Now ask yourself this question: if the Fed turns over 'the profits' to the US Treasury, who do you think the losses are turned over to as well?

Same Treasury.

Mr. Kocherlakota's description of the risk to the Fed corporation posed by bad loans is false.

'the loss ends up on the Fed's balance sheet'

Nope. The Fed just runs your collective national bank account. They no more lend 'their own money' than does the loan officer at your local bank write mortgages out of his own pocket.