Fed Data Dump Reveals More Contradictions About its $1.25 Trillion MBS Purchase Program

EB's picture


Following up on the new Fed document dump, our latest find is an aparent deception by the Fed about its MBS purchases. To wit, the Fed's new MBS page states as follows (brackets ours):

"Outright [MBS] purchases were conducted via competitive bidding to ensure that trades were executed at market rates."

Here's what a paper says entitled "Large-Scale Asset Purchases by the Federal Reserve / Did They Work?", written in part by NY Fed SOMA Manager, Brian Sack (emphasis ours):
Because the MBS purchases were arranged with primary dealer counterparties directly, there was no auction mechanism to provide a measure of market supply. Instead, the pace of purchases of each class of MBS was adjusted in response to measures of whether that class appeared relatively cheap or expensive. To avoid buying at excessively high prices and to support market functioning, purchases were increased when market liquidity was good and were reduced when liquidity was poor.
Now we recognize the Fed has the tiniest bit of weasel room here because the terminology is slightly different and, in fact, the Fed is in the business of weasel phrasing, but it seems at the very least disingenuous to now claim that MBS securities were purchased via "competitive bidding" when no "auction mechanism" was used and they were arranged "directly" with the primary dealers.
According to the Brian Sack paper, it was market liquidity itself based on class-wide evaluation that was used to avoid paying excessively high prices (i.e., attempting to execute at market rates), and not any sort of competitive bid procedure (even if it were not an outright auction). Also, note that "high prices" devoid of the "excessively" qualifier might be deemed a-okay by the NY Fed.
So just what was the nature of this "competitive bidding" process that the NY Fed now says was followed? Perhaps there was merely a fuzzy price discovery process followed by a conference call and subjective award of the transaction at a mutually agreed upon price. Hardly sounds competitive, though.
Here's another thought: the new Fed statement is in the context of outright Fed purchases, so that those "bidding" would actually be the various investment managers acting on behalf of the NY Fed (e.g., Pimco, BlackRock, Wellington & Goldman). The primary dealers (also including Goldman) would be "offering". Thus, it may be that the Fed is imputing it paid market prices based on its own hired managers competing for the MBS assets of the PDs (did we point out that Goldman was on both sides?). That this would result in market prices being paid is facially absurd.
Either way, there are some questions to be answered next time Bernanke gets in front of Ron Paul.  It would behoove incoming House Speaker John Boehner not to attempt to block Paul's ascendancy to the Domestic Monetary Policy Chair


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gwar5's picture

Ron Paul needs to chair the committee and do what he was born to do.

The Fed is making policy by unnaccountable clandestine fiat, both domestic and foreign, and has run amok (more than usual). Things don't look good at all. 

tony bonn's picture

" a fuzzy price discovery process followed by a conference call "

that is precisely how it happened....reward incompetence to prove the peter principle correct....welfare for ponzi crooks to keep central park prices elevated...

and so now you know why the fed so desperately has to inflate its crooked decrepit balance sheet "securities"

deepsouthdoug's picture

An old used car salesman told me, 'A good deal is always in the mind of the buyer.'  The Fed is out of its mind!  What I consider a good deal on MBS's and what the Fed can be considers a good deal can be defined as the insanity gap.

DaveyJones's picture

"weasel phrasing" is quite the past time in that neck of the woods. Weasel hunting will be the next.

Rusty_Shackleford's picture

Complete and utter lawlessness and corruption on all levels.


At a certain point, I don't know why we even bother discussing it.


Liberate tutemae ex Inferis

Hansel's picture

I've felt the same way for a while, as I know you have.

Widowmaker's picture

310+ Million born every minute -- United States suckers that is.

Obviously, this has everything to do with price stability and high employment [sic], and nothing about conflict of interest and looting the US Treasury.

Paul E. Math's picture

"purchases were increased when market liquidity was good and were reduced when liquidity was poor."

Just to make absolutely sure that the Fed paid top dollar at every possible chance.

Bartanist's picture

It was an auction, just that there were no other bidders .... EVER!! And most likely the banks were able to set a favorable "reserve" price.

New Revolution's picture

A hang'em high,.... Lord,... hang'em high.    Welcome to the New American Revolution.

SheepDog-One's picture

Oh, YOU were issuing a warning to Boehner, headline suggested the FED was. Have you heard suggestions that Boehner intends to block Paul? 

EB's picture

Did not intend to suggest the Fed was warning.  Yes, there are rumors about Boehner blocking Paul: