Banks Squirm as Congress Moves to Cut the 6% Dividend Paid to Them by the Fed

[Tsing Tao]

The dividends paid by the fed on capital stock are part of their operating expense.

How odd. Because in GAAP, dividends paid are financing activity, not operating. Hmm..

I think you need a refresher course on financial reporting statements. Pay particular interest to the statement of changes in equity and the statement of cash flows.

As for the source of the article, it is in the link. Why is the source more important than the ideas presented? If the source of the article is ZH, and the article says "the sky is blue", is it instantly untrue?

 

[piezoe]

How odd. Because in GAAP, dividends paid are financing activity, not operating. Hmm..

I think you need a refresher course on financial reporting statements. Pay particular interest to the statement of changes in equity and the statement of cash flows.

As for the source of the article, it is in the link. Why is the source more important than the ideas presented? If the source of the article is ZH, and the article says "the sky is blue", is it instantly untrue?

Where the dividend shows up in the Fed books I'm unsure. This much I am sure of, however, the 6% dividend paid to the Member banks in return for use of their capital will reduce the amount transferred to Treasury by an equivalent amount. One has to consider that this "dividend" is not exactly the same as a dividend voted on by boards of for profit corporations and paid out to share holders, so it is quite possible that it is handled on the Fed books differently than a dividend paid to common stock holders would be handled under GAAP. I'm sure if you were interested you could find out exactly how it is treated in Fed's accounting practice, because the Fed's books are part of the public record.

Maybe for slow learners like me, you could be nice and just say at the top "from Zero Hedge".

I favor having the "dividend" be determined by formula according to interest on the long bond which is also considered risk free. It seems reasonable to me that the fed pay something in exchange for the use of capital from these private, for profit, member banks .

 

[Tsing Tao]

Where the dividend shows up in the Fed books I'm unsure. This much I am sure of, however, the 6% dividend paid to the Member banks in return for use of their capital will reduce the amount transferred to Treasury by an equivalent amount.

Exactly. So it is misleading to say the Treasury gets 100% of the profits, when the profits are reduced by the amount paid to the banks.

Maybe for slow learners like me, you could be nice and just say at the top "from Zero Hedge".

You dodged the question, Pie. If ZH wrote an article about how the sun rose in the East (to use your previous analogy), would you discount it because it was ZH?

 

[piezoe]

Exactly. So it is misleading to say the Treasury gets 100% of the profits, when the profits are reduced by the amount paid to the banks.
You dodged the question, Pie. If ZH wrote an article about how the sun rose in the East (to use your previous analogy), would you discount it because it was ZH?

RE: "misleading"...That's a point of view I have no problem with. I'm not agreeing with it however.
RE: your question with regard to a hypothetical ZH article. I would think it is trivial., and wonder why they bothered. Once and a while they print something I agree with, but I am always aware that their point of view is slanted. I try to overcome my predilections, i.e., my natural "slant", and listen to arguments on all sides. I hope I am flexible and able to change my mind. I have a pretty low tolerance, however, for stuff that is obviously nonsense or absurd, i.e., the kind of stuff you might hear from a politician's mouth but that no educated person would accept as reasonable, or germane... or perhaps remarks made long ago in an entirely different context, but then repeated as though they were still applicable today.

 

[Tsing Tao]

RE: "misleading"...That's a point of view I have no problem with. I'm not agreeing with it however.
RE: your question with regard to a hypothetical ZH article. I would think it is trivial., and wonder why they bothered. Once and a while they print something I agree with, but I am always aware that their point of view is slanted. I try to overcome my predilections, i.e., my natural "slant", and listen to arguments on all sides. I hope I am flexible and able to change my mind. I have a pretty low tolerance, however, for stuff that is obviously nonsense or absurd, i.e., the kind of stuff you might hear from a politician's mouth but that no educated person would accept as reasonable, or germane... or perhaps remarks made long ago in an entirely different context, but then repeated as though they were still applicable today.

A lot of non-committal commentary in there. My point is you should attack the arguments, not the source - regardless of the source - unless it is so absurd that even a child would see it "ie, the sun will not rise".

Regarding you not agreeing with the statement on "not 100% of the profits go back to the Treasury", that's just being stubborn. If you tell someone that 100% of the money made goes to a source, and you find out it doesn't, simply "not agreeing" doesn't change the truth of the issue.

It's like when you were going around saying that the GM bailout was profitable, yet were shown otherwise. In that case, you accepted it. You didn't dig your heels and shout "nuh uh!"

 

[piezoe]

A lot of non-committal commentary in there. My point is you should attack the arguments, not the source - regardless of the source - unless it is so absurd that even a child would see it "ie, the sun will not rise".

Regarding you not agreeing with the statement on "not 100% of the profits go back to the Treasury", that's just being stubborn. If you tell someone that 100% of the money made goes to a source, and you find out it doesn't, simply "not agreeing" doesn't change the truth of the issue.

It's like when you were going around saying that the GM bailout was profitable, yet were shown otherwise. In that case, you accepted it. You didn't dig your heels and shout "nuh uh!"

You may not have been thinking of profits net of expenses. The Fed considers the interest they have to pay to member private banks for use of their capital to be part of their operating expense. They refer to this fee, fixed by law, somewhat oddly I think, as a "dividend", and I suppose that goes to their unfortunate, loose use of the word "stock". One hundred percent of Fed profit does flow to the Treasury, but that is profit net of expenses of course. What else could it be? As a matter of fact, I think I have always been pretty careful to say 100% of net profit, or 100% of profit after expenses, haven't I?

I'm not exactly sure what the "arguments" were in the zero hedge article. Were they suggesting that the Fed should not compensate these private, for profit banks for use of their capital? Or were they just trying to make the point that the interest is too high. Or was their point that banks prefer to make more rather than less? I think a valid argument can be made in support of altering the interest rate, i.e., the "dividend". I have expressed my own opinion that the rate itself should not be fixed by statute, but rather linked by formula to the Long bond.

 

[loyek590]

You may not have been thinking of profits net of expenses. The Fed considers the interest they have to pay to member private banks for use of their capital to be part of their operating expense. They refer to this fee, fixed by law, somewhat oddly I think, as a "dividend", and I suppose that goes to their unfortunate loose use of the word "stock". One hundred percent of Fed profit does flow to the Treasury, but that is profit net of expenses of course. What else could it be? As a matter of fact, I think I have always been pretty careful to say 100% of net profit, or 100% of profit after expenses, haven't I?

I'm not exactly sure what the "arguments" were in the zero hedge article. Were they suggesting that the Fed should not compensate these private, for profit banks for use of their capital? Or were they just trying to make the point that the interest is too high. I think a valid argument can be made in support of the latter point of view. I have expressed my own opinion that the rate itself should not be fixed by statute, but rather linked by formula to the Long bond.

no kidding, 90% of our problems could be stabalized by linking everything to the long bond

 

[piezoe]

A lot of non-committal commentary in there. My point is you should attack the arguments, not the source - regardless of the source - unless it is so absurd that even a child would see it "ie, the sun will not rise".

Regarding you not agreeing with the statement on "not 100% of the profits go back to the Treasury", that's just being stubborn. If you tell someone that 100% of the money made goes to a source, and you find out it doesn't, simply "not agreeing" doesn't change the truth of the issue.

It's like when you were going around saying that the GM bailout was profitable, yet were shown otherwise. In that case, you accepted it. You didn't dig your heels and shout "nuh uh!"

As you've learned Tao, I am quick to admit when I am wrong.

 

[Tsing Tao]

As you've learned Tao, I am quick to admit when I am wrong.

On occasion, this is true. Other times you dig your heels and play semantic games.

 

[loyek590]

whatever, the question is, do the private banks make anything off the business they do with the federal reserve?