$118 Billion On Deck In Last Coupon Auction Of The Decade

Tyler Durden's picture

The administration sure is learning how to take advantage of the Ritalin addicted, holiday sales overbonanza'ed (1% increase over last year's gruesome December performance surely must be terrific news) public. Not only did Obama hope the whole Fannie/Freddie BS would slip by unnoticed even as he paid the failed public servants over at the nationalized-in-perpetuity GSEs an insane amount of money, but this week the Cottonelle experts over at 1500 Pennsylvania Avenue tried to sneak a $118 billion in coupons and another $57 billion in bills, a total of $175 billion pieces worth of one-ply bidet replacements, for the last weekly auctions of the "noughties" (yes, apparently that is the name to this most recent lost decade, set to end in a few days. But don't worry Ben Shalom will be around to make sure its bubblicious legacy persists for much, much longer).

Amusingly, there is an increasingly acrimonious battle between the prop trading desks of bailout drama queens Morgan Stanley and Goldman Sachs over the future value of said Cottonelle substitute, the former seemingly believing that bonds are going much higher (with a report claiming that the 30 year is heading to 8% in 2010, who do you think MS' clients will be selling bonds to?), while Goldman getting increasingly nervous about the economy and having investors buy even more bonds with the 10 Year expected to somehow hit 3.25% (again, Goldman's prop traders will be happy dump said security to long-only idiot money).

The full breakdown of this week's action, which will see $101 billion auctioned off just today.

Below is an artist's rendering of what the last calm before $2.5 trillion UST 2010 $2.6 trillion in gross coupon supply ($1.8 trillion net) shitstorm looks like.

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whopper's picture

My oh my..How much longer can this go on ?? My new idea is that since the money that is created from nothing will disappear like it is nothing and there will be no repercussions from the insane money printing exercise. I guess the media has finally got to me. sigh.  

phaesed's picture

much longer than you think.

Shocker's picture

haha, I said the same thing to myself Whopper, how can we still function?? Between the printing of the money and, the continuous job losses, I don't see it ending pretty. The stats are not on our side thats for sure

Cursive's picture


It's not created from nothing.  It's created from debt.  There are a lot of accounting entries that say that the U.S. Taxpayer owes a lot of money (currently $14T) to its creditors.  That's not a fiat money system, it's a debt money system.  I am as flabbergasted as anyone as to how we've gotten to this point, but we eventually have to either pay the debt back or default on it.  Neither of those options are pretty because, even in the case of default, we would be forced to confront the Ponzi nature of our current debt issuance and that "resource" would no longer be available to fuel our fraudulent economic "growth".

agrotera's picture

...repay or default...all in the name of a bunch of criminal scumbags we call legislators being captured by the financial mafia that confiscated money from the US taxpayer future earnings into the very distant future....crimes getting passed off as 'for our own good' and, 'to prevent the world from coming to an end as we know it' .  Too bad the US citizens didn't catch on that ending the reign of crime perpetrated through the privately held federal reserve system and all of it's cartel members would have been the beginning of a great thing for the US.

Anonymous's picture

scumbag legislators is far too kind.

the third, and most likely, option is to hyper-inflate out way out of the debt. anyone else thinking of moving mass amounts into TIPS???

dnarby's picture

+1 & double thumbs up

Anonymous's picture

nicely put!!


nicholsong's picture

Repayment via hyperinflation is still a default.


Cursive's picture

In a hyperinflationary environment, there would be would be winners and losers among debtholders.  Those who assumed no further debt would be winners, but the possiblity of assuming no further debt hinges on the availability of current income or use of personal savings.  Most people probably don't have savings to provide for a rough patch and the spending power of any savings would have been greatly eroded.  The economic woes of a hyperinflationary episode would be severe for the U.S. economy.  Higher input costs would cause greater pressure on American businesses and would result in ever greater layoffs.  This is why an inflationary scenario seems highly unlikely.


Now, as for those who would assume more debt or refinance debt in a hyperinflationary environment, they would basically be running in place or, worse, amassing ever greater amounts of debt that could not be repaid.  The only entity that could possibly issue more debt in a hyperinflationary environment would the government, so government debt would skyrocket in a supposed hyperinflationary event.  Regardless, for the reasons I mentioned, I don't see how we could have a hyperinflationary event.

Broken_Trades's picture

We will all wake up one morning and see the balance in our bank accounts has quadrupled or more - But instead of dollars it will be Ameros.




Anonymous's picture


"Myths vs. Facts"

"Myth: The SPP is a movement to merge the United States, Mexico, and Canada into a North American Union and establish a common currency."

"Fact: The cooperative efforts under the SPP, which can be found in detail at www.spp.gov, seek to make the United States, Canada and Mexico open to legitimate trade and closed to terrorism and crime. It does not change our courts or legislative processes and respects the sovereignty of the United States, Mexico, and Canada. The SPP in no way, shape or form considers the creation of a European Union-like structure or a common currency. The SPP does not attempt to modify our sovereignty or currency or change the American system of government designed by our Founding Fathers."

JR's picture

H. 3185


Concurrent Resolution
Sponsors: Rep. Davenport
Document Path: l:\council\bills\nbd\11068ab07.doc

Introduced in the House on January 9, 2007
Currently residing in the House Committee on Invitations and Memorial Resolutions

Summary: Security and Prosperity Partnership of North America

http://www.scstatehouse.gov/sess117_2007-2008/bills/3185.htm (last updated on Wednesday, December 2, 2009 at 3:37 P.M.)


"Myths vs. Facts"

from Rep. Ron Paul August 28, 2006


Globalists and one-world promoters never seem to tire of coming up with ways to undermine the sovereignty of the United States. The most recent attempt comes in the form of the misnamed “Security and Prosperity Partnership Of North America (SPP).” In reality, this new “partnership” will likely make us far less secure and certainly less prosperous.

According to the US government website dedicated to the project, the SPP is neither a treaty nor a formal agreement. Rather, it is a “dialogue” launched by the heads of state of Canada, Mexico, and the United States at a summit in Waco, Texas in March, 2005.

What is a “dialogue”? We don’t know. What we do know, however, is that Congressional oversight of what might be one of the most significant developments in recent history is non-existent. Congress has had no role at all in a “dialogue” that many see as a plan for a North American union.

According to the SPP website, this “dialogue” will create new supra-national organizations to “coordinate” border security, health policy, economic and trade policy, and energy policy between the governments of Mexico, Canada, and the United States. As such, it is but an extension of NAFTA- and CAFTA-like agreements that have far less to do with the free movement of goods and services than they do with government coordination and management of international trade.

Critics of NAFTA and CAFTA warned at the time that the agreements were actually a move toward more government control over international trade and an eventual merging of North America into a border-free area. Proponents of these agreements dismissed this as preposterous and conspiratorial. Now we see that the criticisms appear to be justified.

Let’s examine just a couple of the many troubling statements on the SPP’s US government website:

“We affirm our commitment to strengthen regulatory cooperation…and to have our central regulatory agencies complete a trilateral regulatory cooperation framework by 2007″

Though the US administration insists that the SPP does not undermine US sovereignty, how else can one take statements like this? How can establishing a “trilateral regulatory cooperation” not undermine our national sovereignty?

The website also states SPP’s goal to “[i]mprove the health of our indigenous people through targeted bilateral and/or trilateral activities, including in health promotion, health education, disease prevention, and research.” Who can read this and not see massive foreign aid transferred from the US taxpayer to foreign governments and well-connected private companies?

Also alarming are SPP pledges to “work towards the identification and adoption of best practices relating to the registration of medicinal products.” That sounds like the much-criticized Codex Alimentarius, which seeks to radically limit Americans’ health freedom.

Even more troubling are reports that under this new “partnership,” a massive highway is being planned to stretch from Canada into Mexico, through the state of Texas. This is likely to cost the US taxpayer untold billions of dollars, will require eminent domain takings on an almost unimaginable scale, and will make the US more vulnerable to those who seek to enter our country to do us harm.

This all adds up to not only more and bigger government, but to the establishment of an un-elected mega-government.

Source: Rep. Ron Paul

dorksgetlaid2's picture

That assumes Mexico and Canada will be willing to take on our bad debt.

Dadoomsayer's picture

TLT near its year lows.  Long bond futures have been smacked up for the past month.  Interest rates are going higher, and the main stream media is turning a blind eye...

phaesed's picture

Uhhhh blind eye?

Higher rates has been the CNBC mantra for over 6 months.

Anonymous's picture

Small point, but the decade starts with year 01, not 00. It has another year to run yet.

greased up deaf guy's picture

so were you demanding that the entire world hold off on the new millenium celebration for a year back in 1999 too? :)

virgilcaine's picture

The Commercial JNK Bond mkt hasnt a care in the world... la la la. All is well!

FreddyInBangkok's picture


The Obama administration’s decision to cover an unlimited amount of losses at the mortgage-finance giants Fannie Mae and Freddie Mac over the next three years stirred controversy over the holiday.

The Treasury announced Thursday it was removing the caps that limited the amount of available capital to the companies to $200 billion each.

Unlimited access to bailout funds through 2012 was “necessary for preserving the continued strength and stability of the mortgage market,” the Treasury said. Fannie and Freddie purchase or guarantee most U.S. home mortgages and have run up huge losses stemming from the worst wave of defaults since the 1930s.

“The timing of this executive order giving Fannie and Freddie a blank check is no coincidence,” said Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee. He said the Christmas Eve announcement was designed “to prevent the general public from taking note.”

Treasury officials couldn’t be reached for comment Friday.

So far, Treasury has provided $60 billion of capital to Fannie and $51 billion to Freddie. Mahesh Swaminathan, a senior mortgage analyst at Credit Suisse in New York, said he didn’t believe Fannie and Freddie would need more than $200 billion apiece from the Treasury. But he and other analysts have said the market would find a larger commitment from the Treasury reassuring.

In exchange for the funding, the Treasury has received preferred stock in the companies paying 10% dividends. The Treasury also has warrants to acquire nearly 80% of the common shares in each firm.

The Treasury removed the cap on the size of available bailout funds by amending agreements it reached with the companies in September 2008, when the government seized control of the agencies under a legal process called conservatorship. The agreement allowed the Treasury to make amendments through the end of the year, without the consent of Congress. Changes made after Dec. 31 would likely involve a struggle with lawmakers over the terms.

Some Republicans are angry the administration is expanding the potential size of the bailout without having a plan for eventually ending the federal government’s role in the companies.

The Treasury reiterated administration plans for a “preliminary report” on the government’s future role in the mortgage market around the time the federal budget proposal is released in February.

The companies on Thursday disclosed new packages that will pay Fannie Chief Executive Officer Michael Williams and Freddie CEO Charles Haldeman Jr. as much as $6 million a year, including bonuses. The packages were approved by the Treasury and the Federal Housing Finance Agency, or FHFA, which regulates the companies.

The FHFA said compensation for executive officers of the companies in 2009, on average, is down 40% from the pay levels before the conservatorship.

Under the conservatorship, top officers of Fannie and Freddie take their cues from the Treasury and regulators on all major decisions, current and former executives say. The government has made foreclosure-prevention efforts its top priority.

The pay packages for top officers are entirely in cash; company shares have been trading on the New York Stock Exchange at less than $2 apiece, and it isn’t clear when the companies will to profitability or whether common shares will have any value in the long term.

For the CEOs, annual compensation consists of a base salary of $900,000, deferred base salary of $3.1 million and incentive pay of as much as $2 million.

When Mr. Haldeman was hired by Freddie in July, the company set his base pay at $900,000 and said his additional “incentive” pay would depend on a decision by the regulator.

At Fannie, Mr. Williams was chief operating officer until he was promoted in April to CEO. As COO, his base salary was $676,000. He also had annual deferred pay of $2.3 million and a long-term incentive award of as much as $1.5 million.

Under the new packages, Fannie will pay as much as about $3.6 million annually to David M. Johnson, chief financial officer; $2.4 million to Kenneth Bacon, who heads a unit that finances apartment buildings; $2.8 million to David Benson, capital markets chief; $2.2 million to David Hisey, deputy chief financial officer; $3 million to Timothy Mayopoulos, general counsel; and $2.8 million to Kenneth Phelan, chief risk officer.

At Freddie, annual compensation will total as much as $4.5 million for Bruce Witherell, chief operating officer; $3.5 million for Ross Kari, chief financial officer; $2.8 million for Robert Bostrom, general counsel; and $2.7 million for Paul George, head of human resources.

The pay deals also drew fire. With unemployment near 10%, “to be handing out $6 million bonuses to essentially federal employees is unconscionable,” said Rep. Jeb Hensarling, a Texas Republican who is a frequent critic of Fannie and Freddie.

He also criticized the administration for approving the compensation without settling on a plan to remove taxpayer supports: “To be doing that with no plan in place is just unconscionable.”

The FHFA said that Fannie and Freddie “must attract and retain the talent needed” for their vital role in the mortgage market.

SteveNYC's picture

I like the "10% dividend on preferred stock" part. That is pure gold. I'm sure it is an "accruing" dividend. And best of all, if the govt is actually receiving the dividend at all, it is coming from Fed purchases of the shit that FNM and FRE are hocking.

A disaster in the works for the taxpayer.

Problem Is's picture

"Treasury officials couldn’t be reached for comment Friday."

Like Timmay and the Goldman boys at Treasury are going to drop a strategic turd like that one of Dec. 24th and answer the phones on Xmas day...

Or did Ruppert's idiot WSJ reporter forget what day it was?

Anonymous's picture

A majority of them are jewish, so it's just another day.

RobotTrader's picture


The amount of public participation in bond funds is now standing at an all-time world record.

Thanks to two epic wipeouts in equities.

If the public starts selling bonds when prices falter, where will the money go?






ConfederateH's picture

Gold!  Isn't there a new gold ETF coming out priced at 1/10 an oz per share?  All they need to do is issue paper shares, and we could have a black-market replacement for the green back!

RonnieHonduras's picture

No doubt the shit winds are blowing.  Really, its not like we're talking rocket appliances here.

Anonymous's picture

And they will continue to launder money in the name of saving the system.

RobotTrader's picture

Amanda Drury is looking extra juicy this morning...

lizzy36's picture

robo, was thinking of you when i saw this.......

Shares of mortgage-finance companies Fannie Mae (FNM) and Freddie Mac (FRE) were up more than 20% in premarket trading Monday. Late last week, reports surfaced that the U.S. Treasury Department has agreed to provide Fannie Mae and Freddie Mac with as much capital as they need over the next three years. The companies were placed in government conservatorship in 2008


besodemuerte's picture

Ya I noticed that as well.  Watch them fly to $5 on this empty news.  Unprofitable companies are still unprofitable companies.  All this does is take more from us taxpayers.

ghostfaceinvestah's picture

Yeah, that was really predictable - and odd.

the government has basically admitted the equity in the companies is going to be diluted to no end, but the stocks go up.

It really is criminal those stocks are allowed to continue trading, just further proof we are nothing but a casino economy.

CD's picture

Slightly odd (yet curiously enticing) possible inspiration for a future Robo post:

General stock (post-Christmas) fluff: http://www.nypost.com/p/entertainment/fashion/best_lingerie_images_8NWXo...

Not that you need help, but somehow thought of you when I saw these. Merry ongoing holidays.

phaesed's picture

damn straight Robo....


She's been growing out that hair nicely.

Anonymous's picture

FWIW, 2010 will be the last year in the decade, not 2009.

anarkst's picture

Actually, there are quite a few people who believe that 2017 will be the last year of the decade.

Anonymous's picture

Oh it was the naughty's.

tee hee

Puttin' on the Ritz

Can't wait for that 2.6 trillion short term rollover play


ShankyS's picture

LOL, thanks TD for the witty write-up this am. I needed a good laugh. After all, that is all we can do anymore.


Anonymous's picture

On 13 week bill (CUSIP 912795UL3), it says:
Offering Amount: $28B
Currently Outstanding: $64B

What does it mean? Thanks

wawawa's picture

On a 13 week auction it says:

Offering Amount: $28B

Currently Outstanding: $64B


What does the above nubmers mean?  thanks

phaesed's picture

Don't see where the currently outstanding number is reported, but the auction had a 3.5 oversubscription rate.... Gee, lotsa people wanting that paper.They auction 28 billion and it was over-subscribed by ~$66 billion.

(let's keep in mind that's about 1/10th the cost of the health care bill..... now think about the fact that the health care bill costs the same as it did WITHOUT the public option.... gee, that's nice padding without a lot of job creation)


To the person below talking about transaction costs..... keep following that train of thought, that leads you to more knowledge.

Read up people, know your history and know your facts.



johngaltfla's picture

BTC of 3.39, pretty much the norm. But Primary vs. Indirect was approximately a 25:1 ratio, not healthy. Of the $25.8 billion purchased only $2.663 Billion was from the indirects (aka foreingers) indicating no interest in seriously participating, especially with 79.75% allotted at the high rate. IF we continue to see low paricipation in the 3 and 6 month along with the same in the 7-10-30 years, this country is going to see an explosion in mortgage rates that kills whatever NRA wet dream fantasy they think is underway. People can not afford 20% down plus an additional 2% on the mortgage rates for non-coforming loans.

spades434's picture

What is the cost associated with this continuous rolling of short-term debt??? Even at .00001%, somebody has to be getting paid just for the transaction.

anynonmous's picture

a different perspective on fannie and freddie

Here's The Secret Reason We Eliminated The Bailout Caps On Fannie And Freddie


ghostfaceinvestah's picture

I think point 2 and 3 are right on, 5 maybe.  This was done soley to support the MBS market.

My guess is Bernanke wants to get the heat off of him, so he knows he needs to stop buying MBS on schedule.  If he extends it, he is going to be smacked down.

So in an attempt to hide the pea longer, the Administration is going to use Fannie and Freddie to cannibilize their own paper by using leverage - they hope that by putting in a relatively small amount of equity, the GSEs will be able to support a $5T market on their own.

Should be interesting.

As for HAMP, God knows what they are going to do there, but I think this move was unrelated.  Fannie and Freddie will need to start buying back HAMP loans out of MBS, so they will need portfolio room for that, but it isn't a big deal compared to supporting the entire MBS market.

I think the admin is going to hold off on principal reductions, since that will guarantee delinquency rates will go to nearly 100%.  I am not kidding about that - once they start giving out free money, everyone will line up for it, and I mean everyone.

Sancho Ponzi's picture

Agreed. I think the last 30 year treasury fiasco convinced Bernanke he was screwed ,so why not hand it over to the GSEs and let them take the heat. It will be interesting to see what methods are employed to keep mortgage rates artificially low: No payments in 2010? 2.9% financing? Buy one mortgage, get one mortgage in NV, CA or FL free? Maybe they can resuscitate Billy Mays and make him their pitchman.

Pedro's picture

So, for us non-financial novices, if the 30yr bonds hit 8%, does that mean we print more money to pay the higher interest which will speed up the inflationary process?

phaesed's picture

Conventional wisdom states that it lowers the availability of the loanable funds supply by pulling money out of the system.


Of course, Conventional wisdom is what is used to describe a fucking idiot's interpretation of fact. The truth is that the amount of loanable funds increases with a rise in the interest rate to that level because more people are willing to put their money into a checking/savings account, t-bill/bond/note, or some other form of usury (interest) bearing instrument. The only reduction in the money supply is the monthly payment in interest costs to the US government. While we would *NOT* (AND I CANNOT STRESS THIS ENOUGH) PRINT MORE MONEY the US would have to increase the debt limit to cover these costs if tax revenue did not increase sufficiently.

People.... do not confuse credit creation with Federal Reserve note creation. It is the #1 money illusion that people just cannot see past.

ghostfaceinvestah's picture

Don't forget the Fed's strategy to ensure those deposits aren't loaned out - they will create more credit by paying the banks higher interest on their deposits at the Fed.  LMAO!!  What a genius idea.

As for the difference between note creation and credit creation, it is almost immaterial at this point, at the end of the day, all the credit is backed by the printing press - if for some reason people scrambled to "cash in" their deposits in exchange for FRNs, the Fed would have no choice but to print FRNs in order to redeem them.  that would ironically stop money creation in its tracks, but we are a long way from that happening, what with deposit insurance and the like.

More likely people will take their money out of the bank in order to exchange them for something other than FRN's, as central banks are now doing.

Cindy_Dies_In_The_End's picture

It basically means we are fucked. There are some nice explanations about this on Jesse's site as well as on the Market Ticker.

ghostfaceinvestah's picture


Same goes for the Fed paying interest on bank reserves.  What an asinine idea.  So the way to restrict money supply inflation is to create more money? 

Follow that line of thinking to its logical conclusion and you get one result - hyperinflation.


On a related note, this is a sweet smackdown of the deflationists.