The Federal Reserve has spent over one trillion dollars buying mortgage backed securities, so-called toxic assets. How much are these assets worth? It's a simple question but one that is exceedingly difficult to answer not the least because the Fed has resisted being audited in defense of its so-called independence. One might say the Fed's actions have been hidden behind a veil of independence.
We do know that the Fed purchased many of its mortgage securities from the GSEs, especially Fannie Mae and Freddie Mac. We also know that these GSEs have cost the taxpayers at least $148 billion so far and may end up costing $400 billion in one "worst case" scenario. How much larger would the GSE losses have been if the Fed had not taken these mortgages off their books? The Fed also bought toxic securities from the banks and one imagines that the Fed got the short end of that stick. How much larger would bank losses have been without these purchases?
The Fed has been a financial empath, it has taken on other people's financial pain and put it on its own books. But all of this shuffling of losses–perhaps not coincidentally from more to less transparent forms–has obscured the fact that when the shuffling stops it's the taxpayers who are the ultimate empaths, whether they volunteered or not. The taxpayers deserve more than a shell game, they deserve a proper financial accounting which explains where the losses came from and how much ended up on different books, including those of the Federal Reserve.