Wednesday, January 06, 2010
Here's another graphic that I've been meaning to whip up for a while now, one that takes those messy stacked area charts and does a simple snapshot of the Federal Reserve's balance sheet from early in 2009, when the financial crisis was at its peak, to the end of 2009.
Recall that it was in late-2008 when the Fed's balance sheet first ballooned from about $900 billion to over $2 trillion when all manner of emergency lending programs were launched. For the last few months of 2008, most of the newly created assets were categorized as "Other" until things settled down a bit early in 2009.
The moral of the story here is that, a once pristine balance sheet filled with Treasuries was transformed into a jumble of assets that no one else wanted. Then, over the last eleven months, it changed back into a more tidy collection of Treasuries and mortgage related assets that, apparently, nobody else really wanted - at least not at the price that the Fed paid.