Published On: Thu, Nov 10th, 2011

The FFB’s Busy Month

The Federal Financing Bank (FFB) has published its September results. The US Treasury owns this bank. Tim Geithner runs it. FFB’s year-end is September, as a result, the folks at the FFB had a busy month. From the report: (Link).

FFB holdings of obligations issued, sold or guaranteed by other Federal agencies totaled $57.6 billion on September 30, 2011, posting an increase of $2,059.6 million from the level on August 31, 2011.

At $58b the FFB ranks 33rd on the list of the biggest banks in the US. This puts them about equal to Comerica and just under Discover Financial. I’m as certain as I can be that that the folks running the show want the FFB to grow bigger and bigger. Maybe next year they will move into the coveted top 20 ranking. They were booking new loans and rolling over old ones like mad. Way to go guys!

The FFB made 163 disbursements in the month of September.

The FFB also extended the maturities of 318 loans and reset the interest rate for 3 loans issued by the U.S. Postal Service during the month.

Some of the details of the monthly activity are interesting. For example, consider this snapshot of the YE balance sheet:

The good old PO got an extra $1.5B for the month. Note that the outstanding has been brought up to an even $13b. That number is the legal limit for the PO. They have maxed out the credit card at the FFB. 

We’ve been hearing for years that the PO is going broke. Well, we finally reached the finish line. As the following chart shows they have no further borrowing authority and will be insolvent by summer. This means we need a bailout. A pretty big one at that.

This issue has to come onto the table pretty soon or the mail will get very slow. The liquidity problems at the PO could be “fixed” fairly easily by an increase in the debt limit, but that would require congress to act. We all know that congress is unlikely to act on anything during an election year.

If you were concerned that the PO was going broke paying its interest bill, don’t worry. The average cost of financing for the PO is a lousy 1/8th of a percent. They are borrowing under the cost of treasuries.

It’s also worth noting that the FFB continues to make loans to solar and other energy related private sector companies. This is the list of money that went out the door in September:

Note that Nissan and Ford are big takers of dough. For the life of me I can’t come up with a justification for these two big hitters to be on the cheap money list from the FFB. This is not short-term financing we’re talking about. The maturities for these advances runs from 10 to 23 years!

The government is lending money to the solar projects at cheap rates and for as long as 30 years! That’s not debt. That’s equity money. The total of these soft loans now totals $4.9 billion.

Of note is the $214k loan to Beacon (maturity 2030). Beacon filed for chapter 11 one month after getting this money. I strongly suspect that the nice folks at the DOE and FFB were well aware of the pending chapter filing by Beacon when the last advance was made. The amount is odd. It looks suspiciously like an interest payment amount. In the old days bankers who were looking at a payment default often lent more money to cover interest with the sole purpose of avoiding a default over a fiscal year-end. This is window dressing. It’s terrible when banks do this stuff, it’s much worse when the government does it. The FFB out-standings to Beacon are about $40mm. All that money is lost.

There was no discussion of the $530mm of sour loans to Solyndra in the monthly report. There will be no loss for the FFB as a result of that disaster. The DOE has guaranteed any losses. My bet is that if you looked at the DOE books there would be no loss either. Keep in mind that the Treasury Secretary is running this show. Possibly Mr. Geithner has learned the lessons from the commercial banks on how to extend and pretend.

There is one new name on the list of favored borrowers. Agua Caliente got $22mm due 2037. This is the first of many drawings for this venture. “Hot Water” is a good name for this project. I think the administration is going to be deep in (Political) hot water on all these loans as we approach election time. More of the names on this list will have gone bust by then.



About the Author

- Bruce Krasting has been writing for the professional press for the last five years and has been on the Fox Business channel several times as a guest describing his written work. In January 2009, he started writing his blog, Bruce Krasting. From 1990-1995 he ran a private hedge fund in Greenwich Ct. called Falconer Limited. Investments were driven by macro developments.They expressed their views in global bonds, currencies, stocks, commodities and derivatives. He closed the fund and retired in 1995. Bruce has also been employed by Drexel Burnham Lambert, Citicorp, Credit Suisse and Irving Trust Corp. He hold a bachelor's degree in economics from Ithaca College and currently lives in Westchester, NY. We are very happy that Bruce has allowed us to post his articles here on These New Times, and we think you'll agree that his insights are detailed and often brilliant and he has a easy, readable style. You can read his blog everyday here