Tuesday’s Headlines: Federal Reserve Made Record Profit in 2009

UPDATED 12:57 p.m. ET

What bad economy? The Federal Reserve posted record profits in 2009, positioning itself to return $46.1 billion to the U.S. Treasury, the central bank announced Tuesday.

According to an analysis this morning in the Washington Post, much of the Fed’s profit was earned through the unconventional steps it took last year to prop up the economy, such as emergency loans to troubled financial institutions and its aggressive program of buying bonds. By the end of 2009, the central bank owned $1.8 trillion in U.S. government debt and mortgage-related securities, up from $497 billion a year earlier.

As it happens, the Post points out, the Fed’s earnings for the year will easily top the expected earnings of the nation’s biggest banks, including Bank of America, Goldman Sachs and JPMorgan Chase. The windfall gain for 2009 is the largest on record for the Fed dating back to its creation in 1914. The Fed’s largest previous refund to the Treasury was $34.6 billion, in 2007.

“The numbers are good news for the federal budget and a sign that the Fed has been successful, at least so far, in protecting taxpayers as it intervenes in the economy — though there remains a risk of significant losses in the future if the Fed sells some of its investments or loses money on its stakes in bailed-out firms,” writes the Post’s Neil Irwin.

In addition to a refund from the Fed, the Obama administration appears set to impose a new fee on financial institutions to help cut the federal budget deficit and recoup losses from the $700 billion Troubled Asset Relief Program. The administration plans to raise as much as $120 billion through the fee, according to Bloomberg News.

However, the Fed’s record profit “could complicate the Obama administration’s plan to tax banks to recoup the costs of the bail out,” writes Michael Corkery on the Wall Street Journal’s “Deal Journal” blog. “Indeed,” Corkery writes, “as has been pointed out this morning by numerous commentators and analysts, the government bail out appears to have made money for taxpayers in most instances. So, where is the justification for the tax?”

Another option for dealing with the budget deficit comes from Sens. Kent Conrad, D-N.D., and Judd Gregg, R-N.H., who are proposing establishing a bipartisan commission to address the nation’s fiscal shortfall. Their plan would create an 18-member task force made up of 16 members of Congress – eight Republicans and eight Democrats – and two representatives of the administration, including the Treasury secretary.

We’ll have more on this story and the Obama administration’s efforts to reign in big banks and reduce the federal deficit on tonight’s NewsHour.

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In other news this Tuesday:

At the Supreme Court, justices hear arguments to decide whether the federal government can keep convicted sex offenders behind bars after they’ve served out their prison terms. NPR’s Nina Totenberg breaks down the case here. On Monday, the high court weighed whether a defendant has the right to confront his of her accuser in court.

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State media in Iran are blaming the United States and Israel for a bomb attack that killed an Iranian professor of nuclear physics in Tehran on Tuesday.

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President Barack Obama and first lady Michelle Obama travel to Delaware on Tuesday to attend funeral services for the mother of Vice President Joe Biden. Jean Finnegan Biden died Friday at the age of 92.

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The New Jersey legislature approved a measure Monday that would make the Garden State the 14th in the nation to legalize the use of medical marijuana. Governor Jon Corzine said he would sign the bill into law before leaving office Jan. 19.