The Federal Home Loan Banks are a frequently overlooked band of government-chartered cooperatives whose name screams systemic risk with every word. Federal means Uncle Sam. Homes are a declining asset. A loan is money out the door. And banks are the things that get taxpayer bailouts when they’re too big to fail and enough of their loans go bad….
Last week, the FHLBs, which is pronounced “flubs,” published their combined audited financial statements for 2009. And at first glance, it might seem like they had a profitable year. Net income was about $1.9 billion, the banks said, up 54 percent from the year before.
The most striking part about that dollar figure was what it didn’t include: About $8.8 billion of paper losses from their portfolios of mortgage-backed securities. By the banks’ own description, these losses were “other than temporary,” meaning the values of the investments aren’t expected to recover soon.
The reason those losses weren’t included in earnings? The Financial Accounting Standards Board rewrote its rules a year ago so they wouldn’t have to count, following an intense campaign by the banking industry and its friends in Congress….