Before declaring bankruptcy in 2008, Lehman Brothers was the fourth-largest investment bank in the US. It’s bankruptcy nearly toppled the US and global economies and helped precipitate the “Great Recession”.
When Lehman Brothers filed bankruptcy, its assets were only 3% greater than its liabilities.
Today, the Federal Reserve is the single largest central bank in the world. It’s assets reportedly exceed its liabilities by only 1.3%—less than half of what Lehman Brother had when if filed for bankruptcy in A.D. 2008. The Fed has much greater significance than Lehman Brothers and is operating with a much smaller “margin for error”.
The Fed’s potential for causing trouble for the US and global economies is enormous.
SovereignMan.com recently published an article with the peculiar title of “The global financial system is now resting on a margin of 1.3%.”
The article explained that,
“In 2008, the Federal Reserve’s entire balance sheet was just $924 billion. And the total of its reserves and capital amounted to $40 billion, roughly 4.3% of its total assets. Today the Fed’s balance sheet has ballooned to $4.5 trillion, nearly 5x as large. Yet its total capital has collapsed to just 1.3% of total assets.
“The Fed’s total capital corresponds to the Federal Reserve’s ‘net worth’. The value of the Fed’s assets needs to exceed their liabilities.”