Archive - Dec 26, 2009 - Story

• Son of Nigerian banker apparently tries to blow up Delta's EHAM -> KDTW.  (419 BLAM?) [reuters]
• Supposed Delta bomber apparently has al Qaeda ties.  (Explains why he was going to Detroit) [reuters]
• ...and has been known by U.S. officials as a terrorist associate for two years.  (Explains why he was going to Detroit) [AP]
• As they hit 5%, and when they think no one is listening, Freddie whispers that 30-year rates could climb to 6% in 2010. (Rahm: "No big thing.  Just sayin' is all.") [reuters]

One of the key observations of 2009 has been that Primary Dealers, courtesy of their access to the Primary Dealer Credit Facility, and, of course, to the Discount Window, are the critical cog in the Fed's plan to push markets ever higher. In a fashion, the banks that make up the PD community are the designated proxies of the Federal Reserve, allowing it to execute its trading strategy when its own traders at 33 Liberty are having a Starbucks break. As the PDs can pledge any worthless asset to the Fed, for which they get a dollar equivalent of 100 cents on the dollar, the PDs can leverage whatever toxic residuals they have on their balance sheet massively without even using explicit leverage, merely thanks to the Fed's lax standards in accepting practically any collateral. We have had occasional glimpses into what "assets" make up the tri-party repo system that is the backbone of the US financial system, but absent a full blown evaluation and transparency of the Federal Reserve, only the Fed (and specifically its New York branch) and Jamie Dimon really know the state of affairs when it comes to pledge collateral. However, there is some information that we can glean on the broader sense of risk within the Primary Dealer community, which is possible courtesy of the NY Fed's disclosure of the PD's transactions and net holdings by various asset classes. Our focus in this post are the Primary Dealers' transactions and holdings in US Treasuries.