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The Honolulu Advertiser
Posted on: Wednesday, January 13, 2010

Fed paid record $46.1B to Treasury

Associated Press

WASHINGTON The Federal Reserve paid a record $46.1 billion in earnings to the Treasury Department last year, reflecting gains as the central bank bulked up its portfolio of securities to revive the economy and fight the financial crisis.

The payment marks an increase of $14.4 billion from what the Treasury was provided in 2008 and is the largest since the Fed began operating in 1914, the central bank announced yesterday.

The Fed's net income of $52.1 billion in 2009 also was a record, according to preliminary figures. It was up from $35.5 billion in 2008.

Critics on Capitol Hill and elsewhere have expressed concern that the Fed's extraordinary actions to fight the economic and financial crises could put taxpayers at risk by reducing the amount turned over to Treasury coffers.

The payment reported by the Fed came from $46.1 billion in earnings from the securities it held last year. Such income rose largely because the Fed's holdings of securities mushroomed, though increases in the value of the securities also helped, Fed officials said.

The Fed launched several securities-buying programs last year to help lift the economy out of recession. Its goal is to drive down rates on mortgages and other consumer debt.

Under one program that ended last year, the Fed snapped up $300 billion in government debt. Under another program, the Fed is on track to buy a total of $1.25 trillion in mortgage securities from Fannie Mae and Freddie Mac by the end of March. It also will wrap up purchases of $175 billion in debt issued by the mortgage giants at that time. Those programs have boosted the value of securities held by the Fed.

The Fed faces a risk, however. It could lose money if it had to sell those securities after their prices had fallen. The Fed might need to sell the securities to sop up some of the money it pumped into the economy during the crisis.

The Fed's efforts to end the crisis are separate from the $700 billion taxpayer-funded bailout program authorized by Congress in 2008 and overseen by the Treasury Department. Money from this program, originally set up to shore up banks, also has been doled out to rescue other types of companies, including General Motors, Chrysler and GMAC.