December 7th, 2009
02:29 PM ET
11 months ago

Bernanke: Fed will make profit on bailout

Bernanke: Fed will make profit on bailout.
Bernanke: Fed will make profit on bailout.

New York (CNNMoney.com) - Federal Reserve chairman Ben Bernanke said Monday he's confident the Federal Reserve will make money on the trillions ithas pumped into the economy since the start of 2008.

"I think we're in very good shape," Bernanke said, answering questions following a speech at the Economic Club of Washington. "I do believe we're going to get back all the money, and indeed we'll be showing for the taxpayers fairly significant extra income."

Bernanke was referring specifically to Fed programs - not the Troubled Asset Relief Program (TARP). The U.S. Treasury will likely lose money on TARP, though the Obama administration is expected to announce soon that losses will be $200 billion less than initially expected.

The Fed has actually pumped far more money into the economy than Treasury did through TARP.


Its balance sheet soared to $2.2 trillion currently, from less than $900 billion before the financial crisis began in 2008.

The book on some of that lending is already closed. For example the Fed has stopped extending money for commercial paper, a form of short term borrowing used by the nation's largest corporations. The Fed had nearly $300 billion in commercial paper on its balance sheet a year ago, but has only about $15 billion today.

The company that was the biggest recipient of help from the Fed was insurer American International Group, which at one point in October 2008 owed the central bank nearly $90 billion. While the firm has yet to start paying back that money in cash, the government has taken various assets and units of the company in lieu of payment. The Fed intends to sell those assets in the future when they have a better market value.

Today, the Fed has AIG loans of only $20.7 billion.

In his comments, Bernanke did not specify if the Fed will make money on
the AIG transaction itself, or if losses there will be covered by other actions by the Fed during the crisis.

Much of the Fed's efforts to pump money into the economy came through the purchase of mortgage securities backed by finance firms Fannie Mae and Freddie Mac, as well as the debt issued by those companies. It eventually plans to purchase $1.25 trillion of those mortgages and $175 billion of that debt. It has also purchased about $300 billion in U.S. Treasurys.

Most of Bernanke's speech was focused on the outlook for the U.S. economy, and he repeated his earlier forecasts of moderate growth through next year, dogged by continued high unemployment.

Bernanke said that the U.S. economy continues to face "formidable headwinds" that are likely to result in only a moderate recovery.

He said credit remains tight for consumers and small businesses and that the labor market remains weak, despite an end to the deep job losses earlier this year.

"Household spending is unlikely to grow rapidly when people remain worried about job security and have limited access to credit," he said.

Bernanke repeated earlier assurances that inflation is not a deep concern, despite the trillions of dollars the Fed pumped into the economy.

And he's confident that the changes being made in oversight of banks and Wall Street should prevent another crisis such as the one that hit financial markets a year ago.


Filed under: Ben Bernanke • Economy • Federal Reserve
soundoff (32 Responses)
  1. Bob in Pa

    Yeah, right !
    An then that money should be paying off the debt and if not, paid directly back to the tax payers (those that paid taxes).

    December 7, 2009 04:34 pm at 4:34 pm |
  2. Jen in NYC

    The Federal Reserve is private company that is passed of as a government institution because it has the word "Federal" in its name. The Federal Reserve is as federal as Federal Express

    December 7, 2009 04:46 pm at 4:46 pm |
  3. Grrr-awful-o

    That's wonderful! But isn't this statement coming from the same administration that has created or saved 3 million jobs? Even though joblessness is officially now over 10%? Ummmm, maybe I won't just take their word for it this time.

    December 7, 2009 04:56 pm at 4:56 pm |
  4. Grrr-awful-o

    That's wonderful! But isn't this statement coming from the same administration that has created or saved 3 million jobs? Even though joblessness is officially now over 10%? Ummmm, maybe I won't just take their word for it this time.

    December 7, 2009 04:56 pm at 4:56 pm |
  5. Jeff from Atlanta

    I have to laugh at all those people who immediately believe what Bernake is saying.
    didn't they also tell you that giving loans to people who could not otherwise get them would boost the economy? (Fannie Mae collapse)
    And didn't they again this year get after the banks for not loaning money to people who did not qualify for loans? (nothing learned from short term history).
    and haven't they told you that the public option would generate competition? (how, by putting current insurance companies out of business because you cannot compete with someone who does not have to make a profit).

    I cannot believe how easily people are fooled because they like the community organizer. (notice I didn;t say president since he has not taken ressponsibility for anything yet).

    December 7, 2009 05:00 pm at 5:00 pm |
  6. S in Florida

    Can we take that money and write a check to China, and start to pay off our DEBT

    December 7, 2009 05:02 pm at 5:02 pm |
  7. Sue

    The Fed is a private bank. Get an education before you start blaming Obama for this too.

    December 7, 2009 05:03 pm at 5:03 pm |
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