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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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Wed, 01/12/2011 - 16:32 | 871070 NOTW777
NOTW777's picture

exhibit A for the rise in financials today

Wed, 01/12/2011 - 16:35 | 871074 NOTW777
NOTW777's picture

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

Wed, 01/12/2011 - 17:40 | 871237 TrafficNotHere
TrafficNotHere's picture

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

Thank You

Wed, 01/12/2011 - 17:59 | 871308 Dicite justitiam
Dicite justitiam's picture

Overpaying.

Thu, 01/13/2011 - 05:24 | 872449 oh_bama
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

 

Wed, 01/12/2011 - 17:32 | 871214 hambone
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.

Wed, 01/12/2011 - 18:02 | 871324 sgt_doom
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:

http://www.elxfutures.com/

http://www.elxfutures.com/About-ELX/Founding-Firms.aspx

http://www.marketswiki.com/mwiki/ELX_Futures,_L.P.

 

Wed, 01/12/2011 - 16:34 | 871071 buzzsaw99
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.

Wed, 01/12/2011 - 16:38 | 871082 Ragnarok
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

Wed, 01/12/2011 - 16:49 | 871117 Revolution_star...
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.

Wed, 01/12/2011 - 17:16 | 871180 Fish Gone Bad
Fish Gone Bad's picture

I am thinking you will have to Rochambeau for it.

Wed, 01/12/2011 - 17:21 | 871188 Ragnarok
Ragnarok's picture

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

 

Got the avatar off a mikla post.

Wed, 01/12/2011 - 17:47 | 871260 AccreditedEYE
AccreditedEYE's picture

+1

Wed, 01/12/2011 - 16:43 | 871098 Internet Tough Guy
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.

Wed, 01/12/2011 - 16:54 | 871127 buzzsaw99
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.

Wed, 01/12/2011 - 17:30 | 871209 MachoMan
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.

Wed, 01/12/2011 - 18:27 | 871388 hambone
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.

Wed, 01/12/2011 - 16:59 | 871142 bmfe
bmfe's picture

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

Wed, 01/12/2011 - 16:33 | 871072 monopoly
monopoly's picture

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

Wed, 01/12/2011 - 17:12 | 871149 The Limerick King
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.

Wed, 01/12/2011 - 17:21 | 871178 hbjork1
hbjork1's picture

+1

Wait, not enough,

+10

Wed, 01/12/2011 - 19:06 | 871511 Clampit
Clampit's picture

Ain't inflation a bitch?

Wed, 01/12/2011 - 16:35 | 871075 cossack55
cossack55's picture

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

Wed, 01/12/2011 - 16:43 | 871100 DaveyJones
DaveyJones's picture

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

Wed, 01/12/2011 - 16:35 | 871077 AZSovreign
AZSovreign's picture

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

Wed, 01/12/2011 - 16:37 | 871078 plocequ1
plocequ1's picture

Wow. Thats alot of money.

Wed, 01/12/2011 - 16:37 | 871079 InconvenientCou...
InconvenientCounterParty's picture

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

Wed, 01/12/2011 - 16:38 | 871081 TruthInSunshine
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!

Wed, 01/12/2011 - 16:49 | 871094 hedgeless_horseman
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.

Wed, 01/12/2011 - 16:55 | 871132 Ragnarok
Ragnarok's picture

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

Wed, 01/12/2011 - 16:59 | 871144 hedgeless_horseman
hedgeless_horseman's picture

Disclosure Statement: Long RICK

Wed, 01/12/2011 - 17:10 | 871166 TruthInSunshine
TruthInSunshine's picture

"Cocaine is a helluva drug."

-- Rick James

Wed, 01/12/2011 - 17:15 | 871176 hedgeless_horseman
hedgeless_horseman's picture

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

-- Many a patron of Rick's Cabaret

Wed, 01/12/2011 - 17:34 | 871221 TruthInSunshine
TruthInSunshine's picture

+1

Strippers and their teasing ways.

Wed, 01/12/2011 - 17:49 | 871269 Dr. Porkchop
Dr. Porkchop's picture

37,500,000,000 ?

 

Shit, not even Wilt Chamberlain could touch that.

Wed, 01/12/2011 - 17:57 | 871299 Catullus
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.

Wed, 01/12/2011 - 16:39 | 871085 ReeferMac
ReeferMac's picture

Nothing to see here... Move along.

Wed, 01/12/2011 - 16:45 | 871086 Mercury
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.

 

Wed, 01/12/2011 - 17:43 | 871247 hbjork1
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.

Wed, 01/12/2011 - 18:01 | 871316 lesterbegood
lesterbegood's picture

There is another way.

Abandon the corporate federal government as they have abandoned you.

Withdraw your consent.

http://republicoftheunitedstates.org

 

Wed, 01/12/2011 - 18:49 | 871467 1fortheroad
1fortheroad's picture

Withdraw your consent 

+100 silver coins

Wed, 01/12/2011 - 20:14 | 871658 Clampit
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. 

Wed, 01/12/2011 - 16:40 | 871088 LawsofPhysics
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.

Wed, 01/12/2011 - 16:40 | 871089 Quinvarius
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.

Wed, 01/12/2011 - 16:44 | 871104 buzzsaw99
buzzsaw99's picture

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

Wed, 01/12/2011 - 16:41 | 871091 LawsofPhysics
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.

Wed, 01/12/2011 - 17:51 | 871277 velobabe
velobabe's picture

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

bacon, bitchez†

Wed, 01/12/2011 - 16:41 | 871092 Commander Cody
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.

Wed, 01/12/2011 - 16:41 | 871093 DaveyJones
DaveyJones's picture

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

Wed, 01/12/2011 - 16:43 | 871101 A Man without Q...
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?

Thu, 01/13/2011 - 09:30 | 872588 oogs66
oogs66's picture

Sorry, I just saw this, I missed it the first time as I was scrolling through reading comment after comment complaining about the amount of money and no one questioning the validity of the statement.  I completely agree and put a longer post below.  No way is this 5% in price terms!

Wed, 01/12/2011 - 16:43 | 871102 unwashedmass
unwashedmass's picture

i don't think its nobody cares, i think its our legislators are too damn dumb to understand that these guys are literally raping the country.....

and the Wall Street thugs are capitalizing AGAIN on that ignorance.

Wed, 01/12/2011 - 17:13 | 871173 Common_Cents22
Common_Cents22's picture

 

It's no surprise they are ignorant, since over 50% of CONgress are lawyers, most of which never even practiced.   They know nothing but lying to get re-elected and churning out thousands of pages of crap like they are being paid by the word.  (by lobbyists and donors.)

 

Is there even ONE CPA in CONgress?  

 

I love their panels when they have The Bernank or some wall streeter.  They fall all over themselves trying to sound smart in front of financial royalty.

Wed, 01/12/2011 - 17:35 | 871225 MachoMan
MachoMan's picture

+1

 

Wed, 01/12/2011 - 16:44 | 871103 b_thunder
b_thunder's picture

fiduciary, schmiduciary.  since when did the Fed care about the laws?

on paper the Fed may be compelled to work for the taxpayers,  in real life it's real mission is funneling people's wealth to the PDs

 

Wed, 01/12/2011 - 17:47 | 871264 calltoaccount
calltoaccount's picture

anybody who hasn't watched "The Secret of Oz" on the bankster corruption of congress and money should do so.   about 126,000 people have seen it.  if 126Million, America would be a lot better off.



 
"The Secret of Oz",  a documentary on the creation and manipulation of money that runs nearly 2 hrs, but well worth it 

  http://www.youtube.com/watch?v=U71-KsDArFM  

 

Wed, 01/12/2011 - 16:46 | 871106 bob_dabolina
bob_dabolina's picture

The FED gifted me 38% last year on my commodity positions

Thank you POMO but you're still homo mofo.

Wed, 01/12/2011 - 16:45 | 871107 Gimp
Gimp's picture

How do I join da club?

Wed, 01/12/2011 - 16:48 | 871116 plocequ1
plocequ1's picture

You cant. George Carlin said so.. " Its a big club, And we aint in it"

Wed, 01/12/2011 - 17:14 | 871177 Common_Cents22
Common_Cents22's picture

What's the difference between a bitch and a whore?

 

Whore fucks everyone but the bitch fucks everyone.......but you.

Wed, 01/12/2011 - 16:47 | 871113 Cognitive Dissonance
Cognitive Dissonance's picture

 

Across Wall Street, three musical notes — an F, an E and a D — sound on trading terminals, alerting traders that the Fed is in the market.

 

 

The signal for Wall Street's dogs to begin drooling. The musical tones mean feeding time has begun.

Wed, 01/12/2011 - 17:36 | 871231 DisparityFlux
DisparityFlux's picture

"We are looking to get the best price we can for the taxpayer,” said Mr. Frost, a buttoned-down 34-year-old in a striped suit and rimless glasses.

Funny, when I was a buttoned-down 34-year-old in a stripped suit and rimless glasses sitting in front of a computer terminal, I was just well dressed software developer.  My  public service abilities were not truly impressive or appreciated until I changed into my blue spandex outfit with red-cape and became Superman.

Wed, 01/12/2011 - 16:48 | 871114 Miss Expectations
Miss Expectations's picture

Sheriff Ron Paul, saddle up!  This is your moment.

Wed, 01/12/2011 - 16:48 | 871115 inkt2002
inkt2002's picture

Have any of you Zerohedgers stepped back and questioned- Are these the people Really running POMO.

 

Such a naive bunch.

Wed, 01/12/2011 - 16:53 | 871125 TruthInSunshine
TruthInSunshine's picture

Have you ever taken the initiative to look in the fucking mirror?

Wed, 01/12/2011 - 16:56 | 871137 Sophist Economicus
Sophist Economicus's picture

Ooooooooooooooh........

Wed, 01/12/2011 - 17:01 | 871146 Bay of Pigs
Bay of Pigs's picture

Thank goodness ZH has people like you to tell us what to do and how to think. We'd be lost without you. 

Wed, 01/12/2011 - 16:51 | 871121 trav7777
trav7777's picture

I need to get a job with a PD bc that shit makes bonuses and that's how a nigga eat.

Also, Congress?  LOLZ...they are in the business of stealing from taxpayers.  They're like the vault guard that takes a fat envelope to go to the toilet at the right time.

Wed, 01/12/2011 - 18:02 | 871124 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The Life of a Popcorn Boy

Who would have ever known DXY 80 would be so exciting!  Bernanke buying the popcorn, serve it up Geithner!  "Get your PoPcoRNNNN!"  Said little Timmah as he waded through the crowd.  He had made double what he did last year at the same event.  Bernanke waved him over to his seat up high above the floor.  Timmah climbed the stairs and stepped up in frot of him.  "Golly gee Mr Bernanke, this year's QE is really something!"  "Yes Timmah," Ben said as he thumbed some greenbacks.  "We have put on quite the show."  Ben's face was expressionless as he handed over the cash.  Timmah handed him a bag.  "Thanks for the popcorn."  "Your welcome Mr Bernanke, have a nice day!"  Timmah tipped his cap with those words and spun back down the steps.  His mind was racing.   He wondered if he could benefit by selling more popcorn at a lower price.  Then he though maybe he would accept Yuan and SDRs for his popcorn too.  'Golly this is so easy.'  He thought.

Back in the skybox Bernanke was chowing down and watching the QE thumb through the market like a slow and over sized running back does.  "He needs his blockers to step up!"  Said Brian P Sack.  "Fu-uh-uh-uh-uh-king blockers!"  Stammered Hank the Crank Paulson from a stool as he wacked the counter on the window looking in.  Bernanke quitley ate fistfuls of fluffy kernals.  His eyes were on the coach, who was playing this game unuasually conservative.  "What do you think we should do Bernanke?"  Asked P Sack.  Sack walked over and pinched into Bernanke's bag.  "We have to get the ball to the banks any way possible.  I think we should use the Helicopter formation." 

The next play was for a loss.  And the Defense took over.  Obama was the defensive coordinator and locked down the opposing team 3 and out.  Thus far his defense had held up his end of the bargain, only allowing gold to get to $1425.  It was the bankers turn on offense, and they needed to score.  They needed a rally, but gold had already gotten ahead of them.  The margin could only be made up if the Dow rallied.  The dollar would need to be trotted out even though it had just had a concussion by gold's defense. 

The precious metals had not lost to the bankers in a decade.  The head coach, Blankkfein, needed his offensive coordinator, Gross to do something.  He was reminded of the meeting he had with owner Bernanke before the game.  'He would run the helicopter.'  He signaled to the QB to run helicopter.  Dimon went under center and called the play.

With not much time left and many points to score, Dimon threw a hail mary.  They would need a score and to recover an onside kick.  With the clock winding down it looks bleak for the bankers. 

Timmah stood under the tunnel and watched from afar.  He had put his popcorn basket up in the storage room and cashed out.  The full capacity crowd had demanded a lot of popcorn.

Wed, 01/12/2011 - 19:05 | 871509 Hedgetard55
Hedgetard55's picture

+55

 

I miss Lawrench.

Wed, 01/12/2011 - 16:56 | 871135 AccreditedEYE
AccreditedEYE's picture

Gotta fill in those massive holes in the balance sheet somehow. No wonder the economic recovery forecast is decades.

Wed, 01/12/2011 - 16:56 | 871136 Revolution_star...
Revolution_starts_now's picture

I doubt you could touch the bernank if you had pictures of him child molesting.

But if a nasty rumour were to spread that he was a child molester, I would have to deny that those pictures exist somewhere on the internets. (freedom fighters and photo shop users unite?)

I guess that's the only way to find out.

 

Wed, 01/12/2011 - 18:09 | 871353 velobabe
velobabe's picture

+10QE

Wed, 01/12/2011 - 16:57 | 871138 T Rex
T Rex's picture

Ron, call Ben.

Wed, 01/12/2011 - 16:57 | 871139 Ned Zeppelin
Ned Zeppelin's picture

Memo

To: Ron Paul

From: Tyler Durden

Re: Your Request for Stuff To Ask Ben About At Hearings

     Ron, please see my ZH post of 1/12/11, attached. Thanks, TD.

 

Wed, 01/12/2011 - 16:58 | 871140 Milton Waddams
Milton Waddams's picture

Now now, calm down everyone- this is for your own good, for the good of the nation! We all know those billions will eventually trickle down, ex-bonuses, into an assortment of financial assets, completing the loop. Otherwise it might find it's way into the "real" economy, which you certainly do not want to occur as that would be inflationary.

Thu, 01/13/2011 - 00:03 | 872197 DaveyJones
DaveyJones's picture

the tinkle down theory

Wed, 01/12/2011 - 17:03 | 871151 Mikebrah
Mikebrah's picture

So don't we have a pretty good glimpse of the endgame now?  Run this scam until the TBTF balance sheets are back in the black...and then crash it all over again.

Wed, 01/12/2011 - 17:03 | 871153 pitz
pitz's picture

Yup and these cocksuckers just bonus it out to their employees (not based on productivity or any reasonable metric), further destroying the capital base.

The 'employees' use the money to buy real assets. 

The only way this whole shit-show is going to come crashing down is when the people who actually know how to operate, run, and maintain the real assets, ie: engineers, decide they're completely fed up.

Engineers currently take it in the ass right now, most barely even getting a salary of a government secretary or San Francisco bus driver. 

Wed, 01/12/2011 - 17:08 | 871164 orangedrinkandchips
orangedrinkandchips's picture

"I say we blow the fuckers up"

Booger- Revenge of the Nerds

Wed, 01/12/2011 - 17:11 | 871165 Ferg .
Ferg .'s picture

Did anybody witness the ramp up in the final few minutes on the S&P ? ( and which is continuing after the close on the ES ) . Absolutely reeked of I-don't-want-to-be-left-behind panic buying . These "buy the dip" strategy buyers are really getting quite impatient . It's evolving from an intraday to an intra-hour trading approach . Lol .

Wed, 01/12/2011 - 17:36 | 871227 hambone
hambone's picture

EOD ramp?  Which day?  Month?  Year?

Wed, 01/12/2011 - 17:11 | 871168 Cdad
Cdad's picture

POMO is, and always has been, a second bank bailout.  The Fed is not having an algorithm problem.  The Fed does not care what happens to the dollar, and is even less concerned about the tax payer.  The Fed is engaged in preserving a regime, a banker regime that has become accustomed to being well paid even when it fails...or engages in systemic fraud. 

The Fed is preserving the very banker regime that lead us here to this place, a fake landscape populated by self-obsessed people living on instant gratification and consumerism, fueled by equity withdrawals and credit card debt.  In effect, a population of folk that loved how that banker lifestyle looked.

The question of why the Federal government is allowing this to continue to happen is indeed a most intriguing question.

 

 

 

Wed, 01/12/2011 - 17:41 | 871238 thepigman
thepigman's picture

+100

Wed, 01/12/2011 - 17:11 | 871170 dbradsha
dbradsha's picture

US citizens are just a bunch of zombies. DO SOMETHING !!! At least copy this to your congress rep. At best shoot one of them !!!

Wed, 01/12/2011 - 17:17 | 871181 Bubbles...bubbl...
Bubbles...bubbles everywhere's picture

You mean the NYU intern is doing it wrong?

 

Wed, 01/12/2011 - 17:48 | 871266 Miss Expectations
Miss Expectations's picture

That's good...perhaps there's a temp they can blame.

Wed, 01/12/2011 - 17:46 | 871258 Tsunami Effect
Tsunami Effect's picture

No, no, no, don't give them a Bloomberg.  The spread will go to 10%! 

Also, the "taxpayer" is not creating reserves for the FED to purchase Treasury's.  BUT the "taxpayer" (only the top 50% of the earning population) IS funding the debt and paying the coupon to the FED. 

Buy commodities, metals, and stocks.  There's no one that can stop the FED at this point.

Wed, 01/12/2011 - 17:46 | 871259 max2205
max2205's picture

TBTF need 100 trillion to feel better. That's about 1,000 more months of QE. HA HA HA Oh gezz

Wed, 01/12/2011 - 17:50 | 871274 mark mchugh
mark mchugh's picture

It's worse than that, Tyler.

The Fed also handed out the money that the Primary Dealers used to purchase those Treasuries in the first place.  Last time I checked the Primary Dealers had over $7.5 Trillion in debt. 

What a scam, by pretending you have money you can make the whole World your debt slaves, when you are actually the one who's broke.

The people here at ZH are the only ones who seem to care. 

Wed, 01/12/2011 - 21:13 | 871760 Cursive
Cursive's picture

The people here at ZH are the only ones who seem to care. 

Thank you, TD and the rest of the ZH regulars.  Maybe Dr. Paul could broach this subject at the next committee meeting?

Wed, 01/12/2011 - 18:02 | 871322 LongSoupLine
LongSoupLine's picture

claw back..bitchez!

Wed, 01/12/2011 - 18:21 | 871383 Pseudo Anonym
Pseudo Anonym's picture

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

The banksters give it all back to their respective places of worship every week when the collection plate is passed around. So what's the fuss? That's what I want to know.

Wed, 01/12/2011 - 18:28 | 871408 onlymyopinion
onlymyopinion's picture

One of the main reasons folks are pissed at the Fed for doing POMO, IMO is either

a.) they're not in the market (why someone wouldn't want in during what will likely be the biggest strongest Bull Market we'll see in our lifetime is beyond me.

 or

b.) they're (gawd forbid) short the market.

Wed, 01/12/2011 - 19:13 | 871523 Reese Bobby
Reese Bobby's picture

Impressive analysis Sparky.  But please don't hurt yourself...

Wed, 01/12/2011 - 21:10 | 871754 Cursive
Cursive's picture

@onlymyopinion


One of the main reasons folks are pissed at the Fed for doing POMO, IMO is either

a.) they're not in the market (why someone wouldn't want in during what will likely be the biggest strongest Bull Market we'll see in our lifetime is beyond me.

 or

b.) they're (gawd forbid) short the market.

Nah.  Those of us who have a problem with the FRB and the PD arrangement just believe in real work, not the wealth skimming that The Ben. Bernank is perpetrating.  You should google "rent seekers" and ask yourself what happened to American middle class prosperity.

Wed, 01/12/2011 - 23:32 | 872103 AccreditedEYE
AccreditedEYE's picture

You should google "rent seekers" and ask yourself what happened to American middle class prosperity.

+1m. Amen Cursive

Thu, 01/13/2011 - 03:22 | 872401 alexwest
alexwest's picture

5 bln.. beh...
DOD (aka pentagon) cant get a hold what 1 trln $..
how much money lost in IRAQ .. dozens bln in cash..

what to expect from US gov if we yet cant get report on building 7 that collapsed on 9/11 w/out any direct hit.. :)))

5bln . .wake me up when its 100 bln at least
alx

Thu, 01/13/2011 - 09:28 | 872585 oogs66
oogs66's picture

Is ZH as bad as the sheeple watching CNBS waiting for good news and accepting any drivel fed to them?  5% slippage?  5 billion of fees to bankers on 100 billion?  With a 7 year treasury trading at 2.7% and a duration  just over 6, the POMO people would have to buy that treasury at 1.9% yield to misprice it by 5%!!!  Seriouslly, you think the POMO people are buying treasuries almost 100 bps of the current spread?  More likely, by far, is the slipping is 5% of the yield.  Still high, but at least that is believable.  Even then, on a 7yr bond, with 2.7% yield, the slippage would be about 14 bps, so about 3/4 or a point.  That would make the 'fees' to the street 750 million per billion.  My guess is the slippage in per cent of yield is higher for shorter dated bonds than longer ones since the street likes to make a certain percentage and the nature of duration means that is a bigger yield difference on shorter dated bonds.

 

I agree that this whole operation seems bogus.  They should have bloombergs, and maybe an actual professional execution trader, etc.  And I think all prices paid should be disclosed, but there is no way that the street is taking out 5% on average.  The street will buy the bonds the fed is looking for in advance (a day or two ahead).  Enjoy some run up in prices as the market gets ready for that particular POMO, and then jack the prices a bit further, but we are looking at numbers in the range of 0.5% to 1%, NOT 5%.  Lets not just jump on any negative bandwagon or ZH runs the risk of losing the credibility it has been building.

Fri, 01/14/2011 - 02:11 | 875439 bingocat
bingocat's picture

+100.

Thank you. The fact that most posters don't get it says nothing for the quality of ZH posters. The fact that this story was posted in the first place by Tyler Durden says nothing good about ZH.

Much more likely than slippage being "5% of the yield" is that, as per an article with analysis of the first auction of the $600bn, the average price paid was 105 (the Fed was buying 3-7yr bonds with higher-than-market coupons. And the 105 paid, when the Fed is OBVIOUSLY only going to get 100cts on the dollar back in principal, showed that the Fed is "gifting" the amount above par to primary dealers.

The quality of the analysis is stunning, no?

Sat, 01/22/2011 - 15:11 | 895412 Guy Fawkes Mulder
Guy Fawkes Mulder's picture

Tyler quotes John Lohman:

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.

But there is no link the report that "confirms an average of 5% slippage". I'll admit that I personally have no idea who John Lohman even is. The report could "confirm an average of 3 dead children in each and every one of the trunks of the PD's limousines" but of course we all will need to see the report before we string the PD's up.

Without citability, credibility can really only come from faith.

But, oog66, you seem to find it inconceivable that there could be a 5% discrepancy between what the prices the PD's got and what the market was trading at. You would find it more credible that the 5% number could refer to a 5% discrepancy in the bps of the yields between what the market is trading at and what the PD's are getting. You worry that Tyler is reporting something that could not be conceivably true, and a herd of bond-illiterate sheeple are blindly swallowing rubbish.

Let me tell you why I don't think it is inconceivable that the PD's took in $5Bn profit in one month, courtesy of the thin-air money that comes from the Fed, from nothing more than selling debt to the Fed, and still walk around with a straight face.

  1. They may need it to keep themselves from going belly-up next month on whatever payments are due on their derivatives debts. The Fed admits it is committed to saving the "too big to fail" PD's.
  2. They may need it to keep the stock market propped up. Like Weekend at Bernie's / Weekend at Bennie's, the thing is already dead but two clowns named Geithner and Bernanke make it look like he is still going (there used to be picture of that, but Google Images seems to come up with nothing for me tonight).
  3. The Federal Corporation's Treasury (or "U.S. Treasury", if you want to call it that) may have an arrangement with the PD's to keep US bond rates at artificially low levels, to keep the US Federal Corporation looking and feeling healthy (again, "Weekend at Bennie's"). Where real investors in the market don't want the timebombs that are US debt paper at these rates, the PD's agree to buy them low, and then get to offload them to the Fed at 100 bps above the suppressed market yields.

Now the first thing I have to admit is that I don't have the expertise or knowledge that you do, oog66, but I thought I'd take a stab at defending myself for not feeling the incredulity you feel at the face value of the main claim of the report.

Wed, 02/09/2011 - 20:51 | 948035 bingocat
bingocat's picture

First, it's an auction. All the PDs would have to decide that they weren't going to sell a bond for any less than 5% above its value.

Second, (regarding your third point), the PDs would not want to offload them to the Fed at 100bps above suppressed market yields. They'd want to buy them at 100bp higher yields than the market, and then sell them at suppressed market yields. And effectively, that is what the original post last year accused the Fed of doing, though where the PDs got their bonds 5 points cheap is beyond me.

Third, one does not need a BBG. Screen prices are available on a variety of feeds. Reuters even works on a PC these days... (so does BBG, without a BBG keyboard (if these guys can remember what F2/F8/F10/F11 do, they wouldn't need one)). In that case, you can see within 1/32 or so what the market is pricing at any given time. A newbie with a modicum of understanding of what a market is and how auctions work, and rudimentary Excel skills, could keep the spreads to within a few bp of "market prices."

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