Continuing With The Revelation of The Fed’s Stealth Bank Bailout (TARP 2.0), We Present Our Analysis Of The Use And Abuse Of The Primarily Dealer Credit Facility

Reggie Middleton's picture

Primarily Dealer Credit Facility

Note: Paying subscribers may download
the fully scrubbed model containing all of the data output by the Fed
regarding the PDCF as an Excel pivot table here, Primarily Dealer Credit Facility Analysis. Those who are interested in subscribing to our research should click here.

Yesterday, I illustrated how the Fed buried TARP 2.0 amongst a
spreadsheet dump of over 70,000 trades and what amounted to probably a
million cells of spreadsheet data distributed among a plethora files,
see Buried
Deep Within The Files That The Federal Reserve Released On Thier MBS
Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The Banks!
Today, we will review another one of those files, dealing with the
lending program that the Fed instituted for its Primary Dealer banks.

The Primary Dealer Credit Facility (PDCF) was created in March 2008
as an overnight loan facility that provided funding to primary dealers
in exchange for a specified range of eligible collateral. The PDCF was
intended to foster the functioning of financial markets more generally.
The facility expired on February 1, 2010. Analysis of the Primary Dealer
Credit Facility data provided by the Fed indicates appalling facts.

1.      A total $8,959bn was loaned to financial institutions (incl
roll over) with a weighted average interest rate of 1.53%. The total
collateral against this $8,959bn of loan was $9,665bn, a mere 7.88%
overcollateralization in a time of distress and rapidly deteriorating
assets. The quality of the collateral posted for PDCF was pitiable. Only
1.4% of the collateral, on average, was traditional collateral posted
in form of U.S. Treasury or Agency Debt while corporate securities
topped the list with 24% followed by equity at 22% and municipal bond at
14%. Collateral as indicated by rating points to the fact that almost
65% of collateral was either junk or equities. Of the total collateral,
42% was virtually pure junk consisting of MBS / BBB / BB / B / CCC and
unrated instruments and equities constituted 23% of collateral.  Of the
total collateral, 15% was unrated, 7% MBS, 6% BBB, 4% BB, 4% B and 5%
CCC or lower. Only 20% of collateral was AAA while 32% was rated A and
above. Basically, the Fed simultaneously became the dumping ground for
all of the trash that the nation’s big banks needed to get rid of and
the world’s largest vulture fund, it’s just that it paid premium prices
for the junk (see Buried
Deep Within The Files That The Federal Reserve Released On Thier MBS
Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The Banks!

2.      Citigroup was the biggest user of PDCF using almost 20% of
PDCF followed by Merrill Lynch (17%), Morgan Stanley (15%) and Bear
Sterns (11%). Of the 20 primary dealers, these four banks were the
largest users of PDCF. Of these four, all either collapsed or were
rescued save Morgan Stanley, and we issued stern warnings regarding
Morgan’s predicament in February of 2008, see the riskiest bank on the Street.It appears we were definitely on to something!

3.      Barclays took out the single biggest loan ($48bn) under the
PDCF in September 2008. Of the top 20 single largest users of PDCF in a
day, Morgan Stanley topped the list appearing 16 times – again,
referencing the riskiest bank on the Street!

4.      Goldman’s 86% of  collateral consisted of junk securities
including equities (48%) while JPM’s 88% of collateral consisted of MBS /
BBB / BB / B / CCC and unrated instruments, the worst of the lot
followed by UBS (71%) and Citigroup London (70%). We have also warned on
the Street and the media OVERESTIMATING the strength and health of JPM
Morgan, see An Independent Look into JP Morgan.

5.      Citigroup tapped the facility 279 times followed by Merrill
Lynch 226 times; Morgan Stanley 122 times and Bank of America 118
times.  The use of PDCF was highly concentrated with top 4 banks amongst
them using almost 70% of the facility.

6.      During Sep 2008 alone, financial institutions collectively borrowed $1,192bn from the Primary Dealer Credit Facility.


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sodbuster's picture

Thanks Reggie- keep up the good work- you do a stellar job!

gwar5's picture

Thanks Reggie.  Blarney, I guess we're all Irish now.

The recent FED revelations should really put and end to the tin foil hat bankster conspiracy theories. It's a conspiracy fact.

The real government is the unelected, unaccountable, shadow banking unilaterally controlling our foreign and domestic policy.

Things make sense now. The banksters are just running out the clock while the storm troopers are being assembled.

Happy St. Patty's day!





Tic tock's picture

helping people do stupid things faster?

cunningtrader's picture

Tyler and gang have got to understand:the rothschilds can afford to print forever, because they are the only ones with a few lazy quadrillion hanging around under the porch in the backyard....

They are happy however, to keep trying to enslave the entire world to thie NWO crap... Uncle Sam might own your ass if you're in the military, but the Rothschild's own your ass through debt.......

Tic tock's picture

Tyler, will it ever be time to field a Zerohedge political party?

Star Warrior's picture


Lets be original and call it the Coffee Party LMAO


Star Warrior's picture

Hey Reggie, how about making that subscription price more affordable for us nickle and Dime traders!!

Star Warrior's picture

As always Reggies, shit hot and credible info, you are an Analysist in a million, Billion, Trillion (LOL) got to keep up with the POMO.

Pladizow's picture

Who would this data surprise?

Mark Medinnus's picture

Who cares: with an avatar like yours, just keep posting.

Mercury's picture

So, if the PDCF closed down in February does that mean that all the short term loans have been paid back by the banks and the crap collateral is back on the banks' books or has everything just been rolled over into some other money-for-crap scheme?

Timmy has tried to address some "common myths" about TARP but as you point out in the article on your site, TARP is but a drop in the bailout bucket.

Tyler Durden's picture

As we reported on December 1:

One of the biggest stunners: Bank of America pledged as much as 77.2% of a loan from the PDCF with equity collateral!
So much for the Fed taking fiduciary precaution with what crap it lends
taxpayer money against. This is a topic we first (very disgusted) discussed first over a year ago.

Kayman's picture

But this is the proof that TBTF is TOO BIG TOO EXIST. When the entire nation is put at risk to save a few cancerous dinosaurs, then let them die.

Power is concentrated in too few hands, money is not allocated on a productive basis, and the (private sector) middle class gets the tab.

Crony Capitalism needs to be buried, and Competitive Capitalism needs resuscitation.

Where are the Trust Busters Tyler ??

Tic tock's picture

moneymutt, if similar terms were available to everyone it wouldn't be capitalism, where normally one gets a loan interst rate on their credit rating. The Primary Dealers are banks who can, let's say, bankroll a small nation for a year, so they are pretty big and so they get a preferential interest rate.

As for the real value, of which a subset is the cost of the loans, phew! the value is made up of two things, the significance of the thing the bank needed the money for because that is where the money went. Two, the cost is the difference between rates now, with the credit infusion and what rates would been without the facility, multplied by market-sizes under such rates. -insofar as banks are effectively just accumulating profits under a captured Congress, I would tend to think that the 'value' to us is pretty detrimental.

Lastly, licensing money-creation to States and Credit unions in itself is a minor pallitive- there are some who think the price structure, the regulations and laws (so-called Structural reform) applicable commerce, savings, taxes are more relevant in the first instance.


Tic tock's picture

Yes, the numbers are large, but so are the banks' total assets. Without knowing what the size of squeeze is from the banks there's no way to quantify this outlay in terms of 'moral hazard' or imprudence. Anyone can believe that the PDs borrowed the money to pump their profits- but we don't know if, for instance, this facility was used for that. Sure, $8trn is far too much, it does portray a systemic failure in the happening, I just don't think a contention is that the Central Banks should not have covered for the potentially serious risk to financial rates; the question is how far and above the Central banks went and doing so effected what is more than likely to be the greatest transfer of wealth out of the hands of the poor, the tired, the downtrodden as well as the now persecuted middle-class. Go Constitution!

moneymutt's picture

wow, this is really good stuff (well, not good in that it was good thing, but good in that this in very informative)

Pardon my ignorance, but it begs some questions, if someone is willing to explain to me what this means in terms of results and special treatment.

What was the real value of these loans, as in, how much was it worth to the Primary Dealers and how much did it cost us?

Why do primary dealers get a special program?

If similar lending available to others, how much would it have saved those folks and how much would it have cost us. Like say, if a local credit union, state govt could borrow this way?