The Fed Is Gifting Primary Dealers With A Monthly Commission Fee Of Over $5 Billion

Tyler Durden's picture

The topic of how much money the Fed is gifting to the Primary Dealers via POMO commissions has to become front and center right now. While we appreciate fluff "profile" pieces in the NYT addressing the issue tangentially, and assuring us via worthless promises by people whose one purpose in life is to pad the pockets of their future employers in preparation for that inevitable day when said parasites move from faux public service to doing the hard core biddings of a vampire squid, the truth is that this is daylight robbery and it is happening in front of everyone's eyes. As a reminder, per the NYT: "As offers to sell Treasuries flash on a bank of trading screens, a computer algorithm works out which ones to accept." We contest that this algorithm is costing tapxayer billions each and every month and demand that Bill Dudley, Brian Sack, Josh Frost or one of the 20 year old henchmen traders immediately disclose just what the operatinal terms of the algorithm are, and what the slippage is. The reason: we have reason to believe that the Fed's slippage rate is up to 5%. On a monthly POMO notional total of over $100 billion, this means that the Fed hands out well over $5 billion each and every month to the Primary Dealers. This is an abortion of the Fed's fiduciary responsibility and should be criminal if proven to be in fact correct.

John Lohman explains:

If the Fed’s POMO desk had one single Bloomberg, they could compare their weighted average accepted prices with each cusip’s 10:59 price (one minute before the POMO closing) as a means of determining the efficiency of their “computer algorithm”.  A sampling of about 30 issues from the latest report confirms an average of 5% slippage.  This means the most recent month of POMOs gifted $5 billion in commissions directly to the PDs.  If they won’t drop the charade and go directly to auction (where the $5 billion would at least be gifted indirectly to the taxpayer via lower auction yields), they should consider signing up for TradeWeb and buy anonymously like the rest of us.  And send their “computer algorithm” back to Moody’s.

Surely there is one Congressman or woman who is not so bloody stupid, and actually understand that this is nothing short of legal and mandated theft from taxpayers, with the money being handed out directly to the Primary Dealers.

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NOTW777's picture

exhibit A for the rise in financials today

NOTW777's picture

monster new pomo announced and TBTF scream; cnbc then pretends its fundmentals - the recovery in lending

TrafficNotHere's picture

Could someone please explain to me what a "slippage" and or a "slippage rate" is.

Thank You

oh_bama's picture

big orders make the market "wider" so if a stupid moron pay offer and sellign bid, he would end up paying a lot more than in a tighter market.

Just as too big a dick would make the ***** wider.. hehe


hambone's picture

When putting this (and the general institutionalized thieving and robbing) together w/ the actions of Jared Loughner I am left in a quandry.

By no means am I unsympathetic to all the victims of the shooting and don't condone the shooting. 

But when no legal means exist any longer to stop the looting, I do expect to see and hear further actions like the AZ shooter.  The actions of the true elites of the world will likely drive more to leap off the edge of sanity and into our headlines. 

Let's just hope innocent victims aren't caught in the crossfire.

sgt_doom's picture

Not including that psycho (and Glen Beck lookalike) in Arizona, meaning not part of this peculiar pattern, but there is been a significant uptick in the number of federal government-related people (as in former fed-turned-consultants, lobbyists, top-level fed employees, etc.) who have been the victim of strange deaths during the previous two months.

Very curious.....

Also, this blog post is exactly why those varmints created ELX Futures:,_L.P.


buzzsaw99's picture

...this means that the Fed hands out well over $5 billion each and every month to the Primary Dealers.

No shit Sherlock! Nobody cares. They could steal a trillion a day and no-one could stop them. Can't buy directly from the treasury, hell no, that would be monetization. Better to buy the PD treasury traitors some more yachts.

Ragnarok's picture

They could steal a trillion a day and no-one could stop them.


This statement made me take pause.  I think you are right.  could/would

Revolution_starts_now's picture

Hey, I think you stole the same avatar I stole.

Compared to a trillion, I guess avatars are peanuts. I think we both need a "williambanzai7" on it to give due credit.

Fish Gone Bad's picture

I am thinking you will have to Rochambeau for it.

Ragnarok's picture

I've had this avatar longer than you've had an account.


Got the avatar off a mikla post.

Internet Tough Guy's picture

What is the escape plan for the banksters? Will they try to hide out in South America like the nazis of old? They must understand that if they steal everything the collapse will take them down too, even if they are sitting on a mountain of (worthless) money.

buzzsaw99's picture

This $5B a month fails to take into account the trillions in 0% short term borrowing they use to buy longer dated maturites. They keep the coupon for every gubbermint bond they own whether they bought it with free fed money or money they stole somewhere else, or with money they conjured using accounting fraud. They are stealing a shitload from the taxpayer and nothing bad will ever happen to them imo.

MachoMan's picture

So the property record is going to burn too?  History accurately accounted for in the new media? 

Part of the beauty of the scam is that entities mean nothing to the principal actors...  they're merely vehicles of pillage and plunder, including the FED itself.  They will be jettisoned while the knowledgeable convert dollars from the ether into real assets...  presumably, they will emerge from our collapse with an even greater stranglehold on the world's (yes world's) real assets (we tend to focus on ourselves...  NASCAR!).

About the only way the scam doesn't work is if wealth is confiscated...  and, that probably means with a machete instead of a scalpel...  meaning, lots of collateral damage, if it's even possible to accomplish.  The Mossad hunted nazis...  but, the only thing our SEC can hunt is tranny porn.  We're fucked.

hambone's picture

No way to know for sure but I don't think the banksters are going anywhere.  Why leave? 

They will have all the money, all the assets, all the gold, silver, farmland, energy, all 3 branches of government, and their own special paramilitary to ensure their safety.

Why do we assume they will fail???  It is "us" the people that are failing and will be left behind and set adrift.  Look at the lack of a reaction to all this...I think the poster above saying they could take a trillion $ a day and nobody would care is right.

Americans = Apathy.

bmfe's picture

“its ok, because the Fed made a profit last year….bla bla bla ”  Is the argument I hate most. 

monopoly's picture

And I am supposed to be surprised by the continuing theft of this country.

The Limerick King's picture

Bernanke has struck quite a deal

Allowing the PDs to steal

To increase inflation

They sold out the nation

The Kleptocrat meme is now real.

cossack55's picture

By "criminal", I assume you are referring to the olden days when there were laws. How quaint.

DaveyJones's picture

there are still laws for 98% of the population, in fact even more.

AZSovreign's picture

I'd like to gift them a firing squad..

plocequ1's picture

Wow. Thats alot of money.

InconvenientCounterParty's picture

This is an example of why ZH is the best. If ZH is wrong, I don't want to be right.

TruthInSunshine's picture

60 billion a year in absolutely free, gifted money, buys a lot of hookers & blow for the 'financial community!'

Thank you TAXPAYERS!

hedgeless_horseman's picture

Roughly 37,500,000,000 one nighters with a hooker and some blow, per year. 

Or, a hooker and some blow for 102,739,726 friends, every night of the year, for an entire year.

Good times...good times.

Ragnarok's picture

Wow! Imagine how much that would actually stimulate the economy!

hedgeless_horseman's picture

Disclosure Statement: Long RICK

TruthInSunshine's picture

"Cocaine is a helluva drug."

-- Rick James

hedgeless_horseman's picture

"Loan me $50...I think she really likes me."

-- Many a patron of Rick's Cabaret

TruthInSunshine's picture


Strippers and their teasing ways.

Dr. Porkchop's picture

37,500,000,000 ?


Shit, not even Wilt Chamberlain could touch that.

Catullus's picture

The true Enron model.

I'd love to know spreads before and during POMOs "auctions". It's such a magnificiently simple fraud it's astonishing.

ReeferMac's picture

Nothing to see here... Move along.

Mercury's picture

Surely there is one Congressman or woman who is not so bloody stupid, and actually understand that this is nothing short of legal and mandated theft from taxpayers,...

Nah...there is no (federal) taxpayer constituency.  It's more likely that Al Sharpton and other shakedown artists will demand a space at the troth for their particular constituency.


hbjork1's picture

Difficulty is that not must the Congress understand but there are procedures that have to be followed and therre must be a consensus on what to do.  Those evil big bankers are constituants to some Congressmen.   For the last round of reform voting by the Finance Committee, I felt that "the fix was in".   Frank and Dodd "took care" of their banking constituency and showed great skill in doing it. 

A few courageous reformers(independants) aren't always enough and then the demented retards in our society want to shoots them because they are action figures in their fantasies.

All we can do is to keep writing our congresspeople.

lesterbegood's picture

There is another way.

Abandon the corporate federal government as they have abandoned you.

Withdraw your consent.


1fortheroad's picture

Withdraw your consent 

+100 silver coins

Clampit's picture

Call me cynical, but I don't see there being a legal solution to our dilemma anymore than I see criminal wrongdoing (especially in light of the events of 2008) by Robert Kahre.

At some legislative / inflation / taxation / quality life expectancy threshold I will be the one making a few changes to benefit my children, and I know our enemies almost as well as I know physics. 

LawsofPhysics's picture

Good ahead fatten them up.  I don't want to be eating skinny financial advisors when the time comes to serve them up.

Quinvarius's picture

The second they let the press in to do a story on the pomo gang, it was sure to cause a hit to the Fed's credibility.  The idea that the financial future of America is being maintained by 4 unsupervised asswipes, in a back office, one of which is a girl in college, with no access to any financial news feeds, can only cause concern.

buzzsaw99's picture

Be happy it's not just one cocaine addled ex squid funky with an etrade account.

LawsofPhysics's picture

Good ahead fatten them up.  I don't want to be eating skinny financial advisors when the time comes to serve them up.

velobabe's picture

see banzai7, pig picture of l. blankman, big pig shit, he is.

bacon, bitchez†

Commander Cody's picture

Just another free money conduit.  Nothing to see, move on.  No need for a Fed audit.  The banksters have the world by the balls (er, short hairs as its non-gender specific) and the band played on.

DaveyJones's picture

what's a few billion amongst friends. Besides, we can afford it

A Man without Qualities's picture

I don't get this - it seems wrong.  A 5% slippage in yield maybe, but not in price in that timeframe?