Mar 13, 2009

A Week on Wall Street: Day 5

New York Federal Reserve

Truly staggering to see the Fed's balance sheet balloon up from ~$800 billion to +$2.5 trillion over the last few months. And I don't think that includes many of the loan guarantees (e.g. the government backstop of $300B of Citigroup debt) that have taken the form of off-balance sheet contingent liabilities. The Fed is still serving up hot steaming bowls of "alphabet soup" - more acronyms for funding programs than we know what to do with. Another frightening comment from our speaker: when the time comes to reign in all that liquidity, its going to be very difficult to do it in an orderly manner. Many of the outstanding commitments are tied to short term obligations, which will run off in due course. But what about mortgages that could take +10 years to amortize? If those securities are unmarketable, the Fed will have no choice but to hold them to maturity, leaving the money supply inflated for quite a while. Our speaker was also light on details about the Fed's exit strategy.

We toured the gold vault which holds the largest cache of gold in the US (larger than the US Bullion Depository at Ft. Knox). 80 feet below street level, the vault has a massive rotating door that forms a watertight seal at night to protect all the sovereign gold that we hold for other countries. This is a free service of the government. The vault looks nothing like what was pictured in Die Hard.


Driving out to New Jersey, we tour the studio and meet with one of the on-air commentators from the news network that everyone loves to hate. Our host is one of the more reasonable talking heads and he comments on how a dedicated financial press is a relatively recent innovation (occurring the last 25 years).

Returning home, the flight was only at 75-80% capacity. Surprising, given the capacity cuts that have already taken place.

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