In a letter to Edolphus Towns, Darrell Issa says: "it is imperative that the Committee obtain all information in the possession of the Federal Reserve Board of Governors and the Treasury Department related to the AIG bailout, including the decision to pay AIG's counterparties at par and subsequent efforts to prevent disclosure of information related to the payments. Senator Jim Bunning, who is familiar with documents in the possession of the Board of Governors, publicly stated that the Board of Governors is in possession of documents that show troubling details about Chairman Bernanke's role in the AIG bailout. As I wrote to you on January 26, 2010, my office has received information from a whistleblower that confirms Senator Bunning's public statements. We now know from several sources that both the Federal Reserve and the Treasury Department are in possession of documents that are essential to inform the Committee's investigation."
Fed Damage Control Courtesy Of Elizabeth Duke (Update: And Dennis "Have My Cake And Eat It Too" Lockhart)Submitted by Tyler Durden on 02/18/2010 - 19:31
Apparently what the Fed thought was sufficiently well "telegraphed" to the market, was "telegraphed" only to Goldman, and maybe a few others. Here is how the Fed is now doing some serious late day damage control before Asia opens, with backtracking courtesy of Fed Board member Elizabeth Duke.
DUKE: DON'T EXPECT THURS DECISN TO LEAD TO TIGHTER FIN CONDTNS
DUKE: DISC WINDOW CHANGES ONLY A REVERSAL OF SPREAD REDUCTN
DUKE: EXPECT BNKS TO USE PRIV SOURCES FOR NORML FUNDNG
DUKE: CONTINUE TO EXPECT NO LOSS ON CREDIT TO BEAR STEARNS, AIG
DUKE: IF HAD TO REDO, WOULD VOTE AGAIN TO MAKE LOAN TO AIG
David Rosenberg, and several other economists, as well as Steve Liesman, share their first perspectives on the sudden (yet oh so "telegraphed") discount rate hike. David can not be too happy as a tightening policy will likely not be very beneficial to a dated-Treasury long position. The question that everyone is grappling with: if this is a first step to "normalization", with every aspect of the market being abnormal, just how far will the Fed really go?
BOTTOM LINE: The Federal Reserve Board has voted to increase the discount rate by 1/4 percentage point, to 3/4%, effective tomorrow. It has also decided to shorten the typical maximum maturity for primary credit under this facility to overnight, from 28 days, effective March 18, increased the minimum bid rate on the Term Auction Facility to 1/2% from 1/4%, and confirmed plans to phase this facility out. In its announcement, the Board has stressed that all of these are normalizations of its discount liquidity facility and not to be taken as a sign of impending tightening in monetary policy more generally. - Goldman Sachs
And Some More Horrible News: Lipper FMI Reports $916 Million In High Yield Bond Outflows, Following $1 Billion Outflow In Prior WeekSubmitted by Tyler Durden on 02/18/2010 - 18:17
And just what HY investors did not want to hear after the Fed shocker: Lipper FMI just reported that High Yield bond funds saw $915.77 million in outflows for the week ended February 17, while bank loan mutual funds saw $160.9 million in inflows. Keep in mind last week was one of the largest outflows in HY in recent history at just under $1 billion. The high beta dumpage is officially on.
Fed Begins Tightening Process: Discount Rate Raised To 0.75% From 0.5%, Futures Plunge, Dollar Surges, Curve PancakesSubmitted by Tyler Durden on 02/18/2010 - 17:44
Will the Steepener/Carry Trade/Long Stock bandwagon please proceed calmly in single file through the exit of the burning theater. Tightening starts:
"The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19." - Federal Reserve
British Navy On Standby Over Falkland Oil Dispute, Gordon Brown Issues Explicit Warning To ArgentinaSubmitted by Tyler Durden on 02/18/2010 - 16:24
"Royal Navy warships were on standby on Thursday to protect commercial shipping to the Falkland Islands as Gordon Brown said Britain would take a robust stand against Argentine encroachment on the resource rich South Atlantic territory." One would guess that a war between Britain and Argentina is simply the latest thing that would bring the market to an uncontrolled, frenzied melt up (on give or take 3 shares). And while the US market responds to no external stimuli any more, this latest development reported by Telegraph, will likely not help the Gilt's recent concerns. "This is modern defence diplomacy in action," an MoD official said. "The warships are there to protect the UK interests in the South Atlantic. If the Argentines were interfere with the free movement of shipping on the high seas that would be illegal and we would make a decision to use our deterrence force."
God bless brave US-based hosting companies.
This website has been taken offline due to the sensitive nature of the
events that transpired in Texas this morning and in compliance with a
request from the FBI. If you want to see the original letter, please
see the archived version at thesmokinggun.com: http://www.thesmokinggun.com/archive/years/2010/0218102stack1.html
The chart left is not indicative of the widening in the sovereign credit of some backwater PIIGS country. It shows the rather substantial move higher in 10 year British Gilt yields over the past week. Are the bond vigilantes slowly but surely (and as very much expected) moving from the periphery, where all the low hanging fruit has been picked, to the core, where the acceleration is only just starting? To be sure, the Gilts are easy targets: with QE unaninmously voted out, and increasing budget deficit, there is little to like.
From Austin, Texas crashed pilot Joe Stack's suicide note. "If you’re reading this, you’re no doubt asking yourself, “Why did this have to happen?” The simple truth is that it is complicated and has been coming for a long time. I saw it written once that the definition of insanity is repeating the same process over and over and expecting the outcome to suddenly be different. I am finally ready to stop this insanity. Well, Mr. Big Brother IRS man, let’s try something different; take my pound of flesh and sleep well."
Expecting A Tax Refund? If You Live In Hawaii Or North Carolina (And Soon New York) You Will Have To WaitSubmitted by Tyler Durden on 02/18/2010 - 14:16
Two weeks ago we warned readers who wanted to get 2009 tax refunds to file their taxes asap. It appears we were prescient. The state budget crisis is about to hit home. Again. Last year California delayed tax refunds due to simply not having any money which to refund. This year, the first states to announce a hold in refund processing for just the same reason are Hawaii and North Carolina. New York State is also considering a comparable action. If you have delayed filing your taxes, it is high time to do so now regardless of where you live as the same "money-saving" approach of halting refunds is likely about to become prevalent now that "everyone is doing it."
Many have wondered just what it was about the past month that has woken up the bond vigilantes from their euro zone slumber, prompting them to suddenly and aggressively punish deficit transgressors. After all, it is not like the massive deficits appeared overnight. Surely had the sovereign bond and CDS widening been more gradual the European authorities would have had no recourse to blame cash and CDS "speculators", whose actions have merely forced the market fundamentals to catch up with reality. Yet due to the sudden move, chaos is rampant, and any minute now 6 scapegoats are expected to be named, in an attempt to deflect anger away from fiscal blunders by various administration officials, whose incompetence is the primary cause for the PIIGS crisis. Morgan Stanley's explanation for the sudden and dramatic move has to do not so much with endogenous fiscal constraints, but more with the ever more prevalent opinion that the giant liquidity pump is coming to an end. Is the market merely pricing in the removal of liquidity and striking at those who will be impacted first when the tide finally starts to recede?
The study of repurchase agreements (or repos) gives us a recent insight into the big players’ view. Repurchase agreements are an important tool of the Federal Reserve that allows them short-term control of money. In the face of this market correction, is there going to be an encore of purchasing agreements that leads to a probable rebound? Up until about early 2008, the correlation had moved up to 0.86 or 0.75 squared. It broke down after that period. This is one reason that we will show the larger, updated version today. I feel that the ascending rate of cumulative repos is simply unsustainable.
David Hawley, an IMF senior advisor, has said that while the fund has previously sent a team to Athens to explore providing technical assistance, it "stands ready to respond positively to requests for future technical assistance." The IMF has so far failed to quantify just how many tens of billions of euros the word "technical" is equivalent to. While this is not precisly news, increasing chatter which includes the words "IMF", "Greece" and "assistance" in the same sentence, can only be preparing the general public for one thing.