Fed Leverage

The less we say about it the better
Make it up as we go along
--Talking Heads

Since 2007, assets on the Federal Reserve's balance sheet have expanded from $850 billion to $2.8 trillion. At the end of April, the Fed reported assets of $2.695 trillion against capital of $53 billion.

That's a 50:1 leverage ratio. Bears Stearns and Lehman were leveraged about 30x before they imploded.

At 50x leverage, prices need only go against you by 2% before equity is wiped out.

Of course, the Fed does not have to worry about insolvency risk. That risk has been transferred to us.

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