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Federal Reserve Loses $2.4 Billion In Taxpayer Money In Most Recent QE2 POMO Interval

Tyler Durden's picture


With the Federal Reserve now actively participating in capital markets, it should be noted that just like every other asset manager, the Fed has to be held accountable for its trading efficacy. After all, the Treasury takes every opportunity to remind the US public how courtesy of record amounts of new government debt, it has managed to make "profits" on its assorted investments, which are merely transfers of risk from one entity to another, and the "another" being the US taxpayer, although not directly, but indirectly via the now ludicrous amount of US debt which will never be repaid. Which is why the US taxpayer may want to know that in just the most recent POMO schedule - that from early November to December - the Federal Reserve has lost $2.4 billion in taxpayer capital by its mistimed market operations, primarily due to the recent rise in interest rates. This is $2.4 billion that has not evaporated, but instead has been transferred to Primary Dealers under the "profit on trade" category. This is also money that will be used to determine, and fund, banker bonuses.

John Lohman breaks down the specifics of the P&L calculation:

Announced par purchases: $106,300,000,000

Actual Market Value Paid:   $116,457,219,800

Market Value 12/10/10 :    $114,032,149,219

Taxpayer Profit/(Loss):  ($2,425,070,661)

The money transfer continues, but much more concerning, the Fed continues to assume ridiculous amounts of interest rate risk on behalf of taxpayers with absolutely no Plan B should it lose control of the situation.

As Zero Hedge readers known by know, the DV01 on the Fed's total rate holdings was recently estimated at about $1 billion. This number refers to a Fed balance sheet as of April 2010: extending the calculation for the Fed's current ballooning holdings, means that the DV01, or the P&L impact from every basis point move up or down, is now about $1.5 billion. In simple terms, a 1% move in rates will result in a $150 billion loss to taxpayers! And so on: 2% - $300 billion, 3% - $450, although technically not in a linear fashion, as by then the convexity impact will make losses progressively larger. And that's not all - by the time QE2 is over, and the Fed's balance sheet is about $3.5 trillion, DV01 will be just under $3 billion!

Basically what this confirms is that should the Fed lose control of interest rates, the losses to Americans will be in the hundreds of billions, if not trillions, wiping out any imaginary profit from TARP repayments and other marginal optical illusions.

And two more thoughts: strike any thoughts that QE2 is just $900 billion of fund transfers to Primary Dealers. As we have said before, this is the notional amount of debt bought back. Adjusting for market values, means that the Fed will actually transfer well over $1 trillion in actual cash to Primary Dealers.

Second: the Fed is blasting headlong into a potential inflationary situation with absolutely no rate hedes. When will the Fed actually start managing the downside risk on its SOMA portfolio? When will Ben Bernanke or Brian Sack finally direct BlackRock to buy some upside rates protection. Of course, should the Fed do that, the move in the market predicated by the need to hedge a $2.5 trillion rate portfolio would itself start a massive sell off in rates instruments due to the feedback loop nature of modern "efficient" and volumeless markets.

h/t John Lohman


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Fri, 12/10/2010 - 16:51 | 796876 jahbless
jahbless's picture

No.  Fucking.  Way.

Fri, 12/10/2010 - 17:16 | 796979 mule65
mule65's picture

Way.  TD says avoid stocks.  SPY up 80% from low.

Fri, 12/10/2010 - 17:22 | 797015 chopper read
chopper read's picture

i have never once heard TD suggest anyone 'avoid stocks'.  However, fraud and lies are revealed and reported upon daily.

Fri, 12/10/2010 - 17:26 | 797026 traderjoe
traderjoe's picture

Yes. And gold and silver up nicely. TD did recommend EU CDS' when they dipped earlier this year. Probably a 2-3x+ bagger, but I can't/don't trade those...

Fri, 12/10/2010 - 17:26 | 797030 Tyler Durden
Tyler Durden's picture

Also, before they rose by 80%, stocks dropped by 50%. To be sure though, a centrally planned economy will never allow a disconnected market to trade down.

Fri, 12/10/2010 - 17:39 | 797068 traderjoe
traderjoe's picture

TD, I applaud you for NOT recommending investments. It would be a trap. Occasionally, you do mention some ideas, including your arbs. 

You should include in your occasional rebuttal on this very point that PIIG's CDS 'recommendation'. It was a very timely, on point call and also fit with the meme of the site (counter-FinMin-bullshit-spewing trade). 


p.s. you should perhaps have a symbol next to readers that have donated to the site? Also, send a receipt when a contribution is made to the e-mail address on record? My PayPal deducted the money, but my shopping cart on ZH never was cleared and no confirmation that the donation was received was sent. Just some minor thoughts...thanks for the site. 

Fri, 12/10/2010 - 17:54 | 797135 iDealMeat
iDealMeat's picture

I donate by clicking on the Cramer ads once in a while..  Screw paypal..

Fri, 12/10/2010 - 23:27 | 797975 G-R-U-N-T
G-R-U-N-T's picture

"p.s. you should perhaps have a symbol next to readers that have donated to the site? Also, send a receipt when a contribution is made to the e-mail address on record?"


-Anonymity is a valued tradition here at ZH, ever reminding ourselves to place principles before psychopaths.


Sat, 12/11/2010 - 02:34 | 798265 traderjoe
traderjoe's picture

Huh? What part of that violates anonymity? I had to give am email address to join ZH, so it is on file. It's standard business practice to acknowledge the receipt of a payment - in order to inform the sender that it has been received. I am curious because my shopping cart was never emptied. It would be nice to know that it was properly received and not lost in cyber-space.

Fri, 12/10/2010 - 18:23 | 797222 Ghostbusters
Ghostbusters's picture

the whole thing is quite laughable.  washington and their rulers in manhattan(co-conspirator) sure have the world preaching recovery.  it is difficult to fight the Fed but that doesnt mean you have to believe in it.  people believed in madoff, petters, greece, ireland, europe, china, and [insert ponzi scheme here] until they didn't. all these analysts, experts, pundits have a vested interest in being bullish.  Ty's chart and simple math dont lie.  When are we going to learn between the dot com bust, the credit crisis, and QE-infinity that we are getting hosed and the flogging is getting worse, not better.  go ahead and buy stocks but the real investments are things with tangible value.  we can sit back and watch as rome burns as no real improvement in the housing market will be seen until unemployment improves, which may never happen, consumer spending resumes its drunken ways, never happen as evidenced by main street's distrust of everything govt, and all this while the govt/banks/corp's get more desperate to "increase household wealth" by propping up the stock market?  Improvement in wages is the only way to increase household wealth and that is only happening in Federal jobs aka banks.  some a$$hole once said, that if you cant beat em, join em; thankfully Americans arent quite so stupid.  we'll get what we deserve, a multi-decade contraction in real terms and our overlords will get theirs too.  The desperation and confusion increases every day and if that makes you want to buy stocks, on infinite optimism based on govt intervention(transfer payments) that we'll all pay for, for the rest of the foreseeable future than so be it but dont tell us with a straight face that things in real terms are improving/recovering.  Income disparity has never been greater in the land of the free and the home of the brave.  the life blood, middle class is more pinched than ever with no help in sight.  people internationally get it, ireland gets it, we know who are rulers are.  the central banking cartels and their cronies at big banks, they all get it.  It is so funny to watch as wankin-bankers think they are helping the real economy as the continue to suck the productivity out of the world economy.  banks are taxing the public in collusion with the central banks and we are ok with this.  each year we pay more and get less.  each year fiscal situations get tighter, we cut more and pay more but these clowns would tell you things are getting better.  like an American Funds wholesaler is going to tell you to be bearish on stocks in 2011?  the government is going to tell you the truth, like a spanish banker told me last week.  estamos jodidos - we're fu%#ed.  up the smelly creek without a paddle and no hope except to buy what the king is telling you or else.  assange is a clown but his efforts are welcomed and jus go to show you the extent of the cover-up.  do we in the US have a budget yet, who is the number 1 holder of US Treasuries(someone explain how we can finance ourselves, in our insolvent state?), if we are in an economic expansion then why can't we raise rates as inflation, buying power, fees, and taxes continue to erode our collective productivity.  It is quite laughable and the emperor continues to undress.  the question is when and the zerohedge crew will be there if they don't get Assanged first.  the whole system is about control over your productivity, taxing rights, birth certificates, passports, TSA, Homeland Security, WTF? We lose freedom more and more everyday and we are ok with this?  the rant is over. we dont need Obama/DC/or someone to tell us how to change, we create change, but we must first be willing. the general attitude is changing slowly but surely. How vain it is to sit down to write when you have not stood up to live.” ~Thoreau

Fri, 12/10/2010 - 18:57 | 797313 traderjoe
traderjoe's picture

Nicely done. 

Fri, 12/10/2010 - 17:21 | 797011 chopper read
chopper read's picture


Fri, 12/10/2010 - 16:53 | 796892 whatsinaname
whatsinaname's picture

well atleast the bankers can have a Merry Christmas.


Fri, 12/10/2010 - 17:00 | 796924 SheepDog-One
SheepDog-One's picture

I hope interest rates sky and blow the FED to tiny bits. Im not buying anything with interest payments anyway, they can kiss my ass...I pray all the time the worst happens to this govt and this FED. I hope China applies more pressure and not only raises rates but doubles their advertised rate hike tonite.

Fri, 12/10/2010 - 17:17 | 796994 PC Load Letter
PC Load Letter's picture

The FED is playing russian roulette and holding the gun at the taxpayers head

Fri, 12/10/2010 - 17:26 | 797020 chopper read
chopper read's picture

no worries.  when it all goes tits up we'll have a 'Nuremberg Trial' and execute them all for High Treason according to the U.S. Constitution. 

Fri, 12/10/2010 - 17:35 | 797059 kentfinance
kentfinance's picture

doesn't matter. the Fed is mark-to-fantasy/accrual and the banks are mark-to-market (with some notable  MBS exceptions). that is always a great way to manufacture profit.

Fri, 12/10/2010 - 17:23 | 797018 RSDallas
RSDallas's picture

Dog, You really should seek counseling and medication.y

Fri, 12/10/2010 - 17:32 | 797045 SheepDog-One
SheepDog-One's picture

You want the Ponzi to go on, and Im the one who should seek counseling? LOL, too funny.

Fri, 12/10/2010 - 18:00 | 797154 chopper read
chopper read's picture

agreed.  why do we want a system that continues siphoning wealth upwards to oligarchial fascists at the expense of little old ladies scrubbing toilets for milk and bread money?

Sat, 12/11/2010 - 00:05 | 798058 Biggus Dickus Jr.
Biggus Dickus Jr.'s picture

I don't want or expect anything.  I'm just here to trade and make money.  I can't change the world.  Grumbling about it will get me nowhere.  I lost a job and went into the depths of depression.  I made two years turn into hell because of my negativity, but I had the key to unlock my chains and go into business for myself and now I'm doing twice as well.  I would have found it sooner if I weren't so negative.  Negativity only hurts you.

Sat, 12/11/2010 - 00:07 | 798061 Biggus Dickus Jr.
Biggus Dickus Jr.'s picture

medicine worked for me! 

Sat, 12/11/2010 - 00:03 | 798050 Biggus Dickus Jr.
Biggus Dickus Jr.'s picture

why are you so alienated sheepdog?  I'm curious.

Fri, 12/10/2010 - 18:21 | 797216 Malcolm Tucker
Malcolm Tucker's picture

The bankers have been busy catching up to the Pentagon:

Defense v.s. Wall Street: A Cost Comparison


Fri, 12/10/2010 - 18:25 | 797227 Hedge Jobs
Hedge Jobs's picture

i think you mean happy hanukah. check out the menorahs on wall street and the whitehouse.

Fri, 12/10/2010 - 16:54 | 796900 HelluvaEngineer
HelluvaEngineer's picture

Ben's got that much in his sock drawer.

Fri, 12/10/2010 - 16:55 | 796901 traderjoe
traderjoe's picture

Given what the Fed paid for all that MBS and other crap it still holds from 2008, there cannot be a question that the Fed is insolvent. Of course, since they can create money out of thin air, I'm not sure how that matters. 

End the Fed. 

p.s. Sanders still filibustering old school style. 

Fri, 12/10/2010 - 17:04 | 796942 Biggus Dickus Jr.
Biggus Dickus Jr.'s picture

the fed is of course insolvent, but it is the fed, hence it's balance sheet is mostly irrelevant.  In fact we may go to zero reserves held in banks at some point.  The fed thinking on this is that reserve level never stopped a good old fashioned bank run, only liquidity injections. It's all mark to magic anyway.  Reserve levels have never really been all that accurate, and once in a fit of conscience we tried mark to market it went blooey!

Fri, 12/10/2010 - 17:33 | 797051 SheepDog-One
SheepDog-One's picture

Yep they can keep creating more worthless money.

Fri, 12/10/2010 - 17:45 | 797089 MarketTruth
MarketTruth's picture

Agreed, but the real point is this ZH'ers.

This is $2.4 billion that has not evaporated, but instead has been transferred to Primary Dealers under the "profit on trade" category.

The private member owned Fed basically found a way to give free money to their owners/members legally. Of course you the taxpayer is on the hook to pay this money.

Fri, 12/10/2010 - 17:45 | 797090 EscapeKey
EscapeKey's picture

I have it on in the background for comedy effect.

Fri, 12/10/2010 - 16:55 | 796904 the not so migh...
the not so mighty maximiza's picture



Fri, 12/10/2010 - 16:57 | 796912 SheepDog-One
SheepDog-One's picture

$2.4 billion lost? Pffffft...pocket change. American taxpayer, chop chop pay it back quick or its the gulag for ya!

Fri, 12/10/2010 - 16:57 | 796914 faustian bargain
faustian bargain's picture

This is just making me angry all over again. I thought I had "progressed" to acceptance, but maybe not.

Fri, 12/10/2010 - 16:58 | 796915 Biggus Dickus Jr.
Biggus Dickus Jr.'s picture

Don't get upset about it.  When Ben hands the taxpayers a lemon try to find a way to make lemonaide.  The money falling out of one pocket is going into another.  Yeah I don't like it either.  None of us are directly positioned in front of the fire hose, but we can at least drink from the mudpuddle.  I'm not too proud.  I'm here to make money not to complain.  Durden can help you make money if you follow him!  All praise to Durden!

Fri, 12/10/2010 - 17:01 | 796927 Robslob
Robslob's picture

I asked Santa for my very own money printer for Christmas...can't wait to see what is under the tree in 14 short days!

Fri, 12/10/2010 - 22:58 | 797926 G-R-U-N-T
G-R-U-N-T's picture

Why wait for Santa when you can go to Kinko's.

Fri, 12/10/2010 - 17:04 | 796935 tony bonn
tony bonn's picture

speaking of fed losses does anyone know how much its 2.5t usd face value portfolio is really's understandable if you don't know since there doesn't seem to much of a market for the crap it bought from insolvent banks but i am curious to know what a conservative best guestimate of what's balance sheet is worth mark to market....i have believed since 2008 that it is insolvent but it would be interested in quantifying it. and how is the treasury's portfolio of failed dinasaurs such as aig and gm?

Fri, 12/10/2010 - 17:15 | 796986 Biggus Dickus Jr.
Biggus Dickus Jr.'s picture

I can't remember where I read this, but there are estimates between 150 billion and about 400 billion.  That's a small price to pay to save the world.  None of us really want to live in a deflationary depression.  You think you have it hard now, have any of you talked to working class who lived through the depression?  Do you really want to live on beans and cornbread?  IN fact you are so hungry you love it?  All praise to Ben Bernanke too! 

Fri, 12/10/2010 - 17:18 | 797003 kato
kato's picture

"Deflation" is a sucker word. THEY did not call it "Inflation" when housing prices were going up. It is NOT "Deflation" if housing prices go down. HOWEVER, the banks portolios get killed so they use the "D" word to sucker in the government and masses that the economy is going to go off of the cliff. Which it will not. We will have a good and necessary hosuing correction after which housing will be much more affordabel for the masses and things will be better. THE REAL ISSUE is TOO BIG TO FAIL, which has not been fixed.

Sat, 12/11/2010 - 09:09 | 798407 FatFingered
FatFingered's picture

"to sucker in the government and masses that the economy is going to go off of the cliff. Which it will not."

Not sure where you live but might I suggest you get out of the house and take a walk down Main St.?

Fri, 12/10/2010 - 17:35 | 797057 SheepDog-One
SheepDog-One's picture

Are they calling the FED indiced stock market rise 'inflation'? Of course not. Inflation and deflation only get talked about when banks portfolios are suffering.

Fri, 12/10/2010 - 17:44 | 797087 SheepDog-One
SheepDog-One's picture

Anything, stocks bonds or whatever is only as valuable as someone else is willing to buy it for...lets see what its all worth in a sudden war or major terror attack.

Fri, 12/10/2010 - 17:05 | 796939 youngman
youngman's picture

Its like asking a gambler after they just got back from a week long trip in Vegas...they will tell you they made lots of money....never lost a penny....

Fri, 12/10/2010 - 17:05 | 796940 kato
kato's picture

all they have to do is wait it out until they mature and they do not lose. the 'losing' now part does not bother me; the POMO program itself is deeply disturbing.

Fri, 12/10/2010 - 17:05 | 796941 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Basically what this confirms is that should the Fed lose control of interest rates, the losses to Americans will be in the hundreds of billions, if not trillions, wiping out any imaginary profit from TARP repayments and other marginal optical illusions.

And this is why Bernanke MUST keep rates at zero.  Any increase in the rate would shelve the US governments ability to repay the debt.

Fri, 12/10/2010 - 17:07 | 796953 MyKillK
MyKillK's picture

Wouldn't increasing Treasury rates have the same effect tho? Keep the rates at zero, watch yields skyrocket, or be forced to raise rates and watch the Fed's portfolio crumble.

At this point I don't see any chance of a happy resolution to this all. I'm preparing myself for the new Great Depression.

Fri, 12/10/2010 - 17:14 | 796972 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The Greatest Depression....

An increase in rate does not only decrease the price (which ruins Bernanke's cash cow) but means yeilds for the buyer skyrockets, yes.  Bernanke does not want yield's up, too expensive for him and his worthless banksheet.  The Fed's banksheet is what backs the dollar.  The dollar is dead.

Die, die, die my dollar!  Don't utter a single word.....

Raising Required Reserve Ratios Matter Little:

Fri, 12/10/2010 - 17:17 | 796996 B9K9
B9K9's picture

Yep - the Fed cannot allow interest rates to rise or governments implode. However, on the other hand, Ben can't let inflation get out of control, otherwise he has some serious unrest on his hands.

The A&P BK filing, to be followed soon after Xmas by who knows how many companies, is only a harbinger. The trap is government needs free money, but the elderly, women & children (aka "society's most vulnerable") need to heat their homes & feed their families.

Oh what a tangled web we weave,
When first we practise to deceive!

Ben is trapped, yet I have always said he foresaw this trap years ago. The game was always to buy 2-3 years, max. Well, time is up, and it's time to get our reward.

Fri, 12/10/2010 - 17:20 | 797006 Mr Lennon Hendrix
Mr Lennon Hendrix's picture


Fri, 12/10/2010 - 17:24 | 797019 Boston
Boston's picture

Time for Plan B?


Crash the equity markets, and watch the scared money drive those Treasury yields down least.

Fri, 12/10/2010 - 17:31 | 797040 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Plan A...

Let it all flail.

Plan B...

Let it all fail.

Fri, 12/10/2010 - 17:37 | 797067 SheepDog-One
SheepDog-One's picture

Agreed, B9K9, this isnt the beginning of the new normal at all, its a couple years bought, and the end of the road.

Fri, 12/10/2010 - 17:39 | 797073 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Equities peaked in the summer of '07, don't know why it is hard for bulls to remember that.

Fri, 12/10/2010 - 17:08 | 796944 plocequ1
plocequ1's picture

Thats nice. Merry Christmas Dr. Bernanke. You are a true genius.

Fri, 12/10/2010 - 17:06 | 796946 b_thunder
b_thunder's picture

Read my lips:  The  Fed CANNOT lose money.  They do not mark to market or anything else.  And even if they did "marked" to market, they'd simply print money to cover the shortfall.  Flawless business model.


Fri, 12/10/2010 - 17:07 | 796954 shushup
shushup's picture

You would think there was a big POMO today but there was none.

Fri, 12/10/2010 - 17:13 | 796960 doolittlegeorge
doolittlegeorge's picture

I've been totally wrong on the "inflation" thing.  Not on the TRADE however...i slapped an avoid on "all those worthless medical device trades" from the first time i came to ZH which have all been predicated on the idea of "stagflation right around the corner."  Instead I've stuck to the "safety of growth" since "these companies take debt seriously" and for the most part "don't have any."  As if on cue "here comes a take out of a hosiptal chain"!!!  More importantly "bankruptcies of food retailers have now begun."  Again "these are classic inflation trades" and they are now being seen as the total failure of a trade that they should have been seen all along as given their massive and unpayable debt loads and their "mo-mo monkey need" for all this free money.  As Bernanke has so rightly pointed out "THERE'S NO SURPLUS OF DOLLARS."  (Indeed--just a massive unpayable debt now, no?)  I see it as "just the beginning" and "just in time for Christmas" of course.  It should not come as a surprise the Fed is "losing a fortune right at the time treasuries are rallying."  This is what happens when the "the rogue trader" gets taken out by the short sellers:  "the market rallies in your face."  But this is nothing new.  This equity market has been sensing troop movements FOR MONTHS now.  Equity markets have a very good track record of predicting such "liquidity events" as they say.  We shall see.

Fri, 12/10/2010 - 17:19 | 797005 Spalding_Smailes
Spalding_Smailes's picture

Ya, morons like Gonzo Lira will do that.

Sat, 12/11/2010 - 00:19 | 798079 Biggus Dickus Jr.
Biggus Dickus Jr.'s picture

they junk you for agreeing with doolittle.  I'll bet they don't understand what he said.

Fri, 12/10/2010 - 17:08 | 796962 ihedgemyhedges
ihedgemyhedges's picture

Ahhhhh, no big deal.  When the bonuses are received, all those Ferraris and Louis Vuitton bags and Brioni suits and Dom Perignon champagne bottles purchased will offset the Fed's loss to the US taxpayer.  Oh wait...................never mind.

Fri, 12/10/2010 - 17:12 | 796976 razorthin
razorthin's picture

That's what's great about those bond vigilantes - kicking Bernanke in the arse.  But it's not so great if you are long PMs.

Fri, 12/10/2010 - 17:32 | 797042 plocequ1
plocequ1's picture

Bond vigilantes are probaly loading up NFLX and PCLN

Fri, 12/10/2010 - 17:14 | 796981 RobotTrader
RobotTrader's picture

New post by RobotTrader:

How to survive trading stocks today...with girls to boot...

Sat, 12/11/2010 - 00:10 | 798069 Biggus Dickus Jr.
Biggus Dickus Jr.'s picture

I will know the top is in when robo quits getting junked.  Capitulation bitchez!

Fri, 12/10/2010 - 17:20 | 797007 DB Cooper
DB Cooper's picture

And... it's gone.

Fri, 12/10/2010 - 17:21 | 797010 OpenEyes
OpenEyes's picture

Don't look now, but the 30 Yr Bond is down .74% as I write this.  the 10 Yr note is down .67%.  An expensive day for the Fed (and taxpayers).

Fri, 12/10/2010 - 17:40 | 797074 SheepDog-One
SheepDog-One's picture

No worries, as long as stocks went up, america chews its cud oblivious to reality. I have a strong feeling thats about to come to a screeching halt.

Sat, 12/11/2010 - 00:21 | 798084 Biggus Dickus Jr.
Biggus Dickus Jr.'s picture

If you trade based on feelings you will lose.  More cud for me please.

Fri, 12/10/2010 - 17:26 | 797031 firstdivision
firstdivision's picture

Wth is going on in afterhours here?  Also, anyone that watches oil, IMO todays movements in oil were quite odd.  It was as if it was being held back from breaking out to the upside.

Fri, 12/10/2010 - 17:51 | 797122 countryboy42
countryboy42's picture

Saw that as well, but what do I know, I'm just a dumb redneck.

Fri, 12/10/2010 - 17:41 | 797032 JohnKing
JohnKing's picture

get house for 200 hundred bucks!


Scores of Palm Beach County homes were sold to investors at foreclosure auction this month for as little as $200 following the collapse of the David J. Stern law firm and the ensuing confusion while thousands of its cases are reassigned.


The PTB are stepping on their own dicks!

Sat, 12/11/2010 - 00:25 | 798091 Biggus Dickus Jr.
Biggus Dickus Jr.'s picture

This I did not know.  If repossessions freeze up this might be a problem for economic growth because of the uncertainty it creates for the banks.  We need the reposession boat to go full speed ahead.  The sooner we end this nightmare the better.

Fri, 12/10/2010 - 17:31 | 797039 g3h
g3h's picture

A drop in the bucket of its 3 trillion balance sheet.  No biggie.

Mon, 03/21/2011 - 17:53 | 1083365 Sun_Tzu
Sun_Tzu's picture

A few trillion may not be "No biggie" to you, but as  a system administrator and programmer ( it's going to make my life hell as bugs pop up where such large numbers get truncated by code based on once-reasonable assumptions!

Fri, 12/10/2010 - 17:35 | 797061 wiskeyrunner
wiskeyrunner's picture

Yep this is how the whole scam works. The investment banks always get in before the NYFRB start's its massive buying or selling in what ever the flavor of the month is. This is why Wall Street loves the Federal Reserve, they guarantee they enormous profits and the public gets the loss. Just recently thanks to a web this scam is being brought to light. Best and brightest my ass. More like best of dumb and dumber, if these banks and dealers had to make it in an open free market they would loose just like 90% of the traders that try trading.

Note this is no open and free market, its a rigged market run by the FRBNY.

Fri, 12/10/2010 - 17:47 | 797104 EscapeKey
EscapeKey's picture

The Federal Reserve IS JP Morgan (etc), and JP Morgan IS the Federal Reserve.

It's as opaque as the supposed two-party system, which in reality is a sham as well.

Fri, 12/10/2010 - 17:49 | 797115 Common_Cents22
Common_Cents22's picture

Fed/Treasury worlds largest crappy performance hedge fund?  

NOPE.  they have no incentive to succeed.

They are just pokers players who are taxpayer opponents at the poker table who have sweet talked/forced taxpayer to let them play taxpayers hand for them.  

Fri, 12/10/2010 - 17:57 | 797147 Mark Medinnus
Mark Medinnus's picture

Fook me

Fri, 12/10/2010 - 18:00 | 797157 Critical Path
Critical Path's picture

New Bloomberg Poll: Majority of Americans Say Fed Should be Reined in or Abolished...... welcome to the party

Fri, 12/10/2010 - 18:31 | 797244 Downtoolong
Downtoolong's picture

This is $2.4 billion that has not evaporated, but instead has been transferred to Primary Dealers under the "profit on trade" category. This is also money that will be used to determine, and fund, banker bonuses.


And, just to add insult to injury, the bankers will likely make the same amount again if and when the Fed ever gets around to unwinding their positions. They get you coming and going. Talk about job security.


Fri, 12/10/2010 - 18:38 | 797262 max2205
max2205's picture

Thanks TD. POMO IS LINING THE BANKS POCKETS WITH 2.4 billion per month. I believe that's the plan of QE or TARP III or whatever we want to call it. This way Congress doesn't have to make a political decsion

What a fuking ripoff

Fri, 12/10/2010 - 18:38 | 797263 Rainman
Rainman's picture

Bonds are getting spooked due to the impasse on taxes. Uncle Sugar is in hock up to his ass with the real potential of not seeing a raise in revenue. Spending more and earning less with a credit card way over max and no budget and no plan to reduce expenses is more than enough to drive up the yield.

The entire Beltway crowd is now painted into a corner.

Fri, 12/10/2010 - 18:55 | 797309 Bastiat
Bastiat's picture

Tough week in the currency debasement business:  it starts with Bernanke on 60 Minutes shitting bricks  and ends with Geithner pissing stones.

Fri, 12/10/2010 - 19:15 | 797359 Common_Cents22
Common_Cents22's picture

You know what the scary thing is?   If we ended the "indendent" :) Fed we would leave monetary policy up to CONgress?  There are maybe 2 CPA's in the entire CONgress.  the rest are lawyers and silver spoon trust fund babies.


im not sure which is worse.

Fri, 12/10/2010 - 19:21 | 797376 Mark Medinnus
Mark Medinnus's picture

Well, at least we could vote those fockers out of office.

Fri, 12/10/2010 - 19:17 | 797364 Common_Cents22
Common_Cents22's picture

You know what the scary thing is?   If we ended the "indendent" :) Fed we would leave monetary policy up to CONgress?  There are maybe 2 CPA's in the entire CONgress.  the rest are lawyers and silver spoon trust fund babies.

im not sure which is worse.

Fri, 12/10/2010 - 19:19 | 797373 Mark Medinnus
Mark Medinnus's picture

Well, at least we could vote those fockers out of office.

Fri, 12/10/2010 - 19:17 | 797367 Common_Cents22
Common_Cents22's picture

You know what the scary thing is?   If we ended the "indendent" :) Fed we would leave monetary policy up to CONgress?  There are maybe 2 CPA's in the entire CONgress.  the rest are lawyers and silver spoon trust fund babies.

im not sure which is worse.

Fri, 12/10/2010 - 19:21 | 797381 Mark Medinnus
Mark Medinnus's picture


Fri, 12/10/2010 - 19:24 | 797388 Calculated_Risk
Calculated_Risk's picture

I gotta get my hand in all this money printing!!!

I asked for one of these for Christmas...

Sat, 12/11/2010 - 00:26 | 798099 gwar5
gwar5's picture

If bond yields go high because of USD concerns, the Fed is holding the low yield bonds.

The value of the low yield bonds will get wiped out. For low yielding bonds the effect is devastating.

Can the Fed survive it's own solution? The can print more USD, but it won't matter if the world rejects them.


Sat, 12/11/2010 - 09:45 | 798430 FatFingered
FatFingered's picture

Not only are the US taxpayers losers, all holders of the 'World's Reserve Currency' are losers too.

Sat, 12/11/2010 - 10:02 | 798439 baltimor
baltimor's picture

As usual, the work of ZH's journalist is pretty bad, here's why :

1 - You're saying that the DV01 of the Fed balance sheets is $1.5Bn whereas its BS is $2.1Tn which would mean an average duration of around 8.5 years which is not the case.

Take your numbers here, and you will see that the DV01 is lower than what you say.


2 - The convexity has a positive effect on the sensitivity. If the DV01 is $1.5Bn, a rise in IR of 1% would result in a loss of less than 150Bn (more around 136 I'd say).


3 - I doesn't disagree with most of your thoughts but please, do your job and stop making so many mistakes in your articles, it's getting ridiculous.

Sat, 12/11/2010 - 12:31 | 798604 flow5
flow5's picture

"demand for money (of which velocity is but one measure)"..."people will hold onto whatever money they have for dear life"

That's where market forecasters, economists, et. al, are wrong. I.e., the liquidity preference curve is a false doctrine.

Deleveraging meant the liquidation of assets & the transfer of personal savings, from interest-bearing to non-interest-bearing deposit classifications, indicating that the transactions velocity of money (deposits), or demand deposit turnover, vastly accelerated (thru dis-saving or de-leveraging). And it is money actually turning over (or exchanging hands/ownership), that economically vital. This is what has driven gDp upwards (albeit slowly).

But now, after c. 2 years of the shifting deposit preferences, this fuel has been burnt. It now requires QE2 (monetary intervention & stimulus) to counteract the current, & upcoming, shortfall (monetary lag), in aggregate monetary purchasing power.

That's why the "trading desk" has increased SOMA by 52% in the lastest reporting week (over and above its intial decision to reinvest principal & interest payments on Aug 10).   Trading losses be damned.

I.e, aggregate monetary purchasing power is determined by monetary flows (our means-of-payment money X's its TRANSACTIONS rate of turnover). I.e., aggregate monetary demand is measured by the flow of money, not nominal gDp ((Vi) income velocity, is a contrived figure (Vi = Nominal GDP/M).

Sat, 12/11/2010 - 14:04 | 798793 TruthInSunshine
TruthInSunshine's picture

Equity markets are more overvalued now than at any time I can ever remember, with the possible exception of technology stocks during the boom.

The markets are riding on complete hopium, with a whole lot of government intervention in the form of throwing cash into the indexes to make sure the indexes at least don't crash.

With government basically holding up markets with its pinky finger, straining more and more to do, they are only creating more dislocations, inefficiencies and systemic threats to the equity markets.

A perfect example of this is wholesale level inflation caused by rampant speculation in commodities, as money comes out of artificially low yielding (thanks to Bernanke buying bonds from the Treasury, artificially suppressing yields thereon) savings' accounts and rushes headlong into commodities (regardless of supply/demand ratios), which creates inflation for the buyer/user, who then has to either take a hit to margins or raise prices.

That Bernanke and the Federal Reserve Members who support his asinine policies can't seemingly think three steps ahead in terms of consequences of their actions is grave testimony to why they lack credibility domestically and abroad, and represents a dire threat to the U.S. economy (and global economy, actually).

In the meantime, Bernanke thinks he can bank on a cache of academic and intellectual prestige, as in "trust me and us; we know what we're doing even if it doesn't appear to make sense to many," but I do not believe it's working this time.

We now know that Greenspan had no clue what he was doing, and apocalypse didn't rain down over us despite Greenspan's incompetency - not because Greenspan saved us from anything (he just kicked the can down the street by manipulating interest rates to sow the seeds of what would become the real estate bubble). Despite Greenspan's total incompetency, the next bubbles in the U.S. temporarily provided cover and concealment for the underlying rot that was and is occurring to the core of our economy

We also know that Bernanke is either a liar or absolutely incompetent, as he too, is now inflating episodic bubbles, and he too, completely failed to spot any systemic problems, telling Congress and the public in 2005, 2006 and 2007 that there "was no housing bubble" and that "financial institutions were well capitalized and in good health."

Nothing was or could have been further from the truth.

And now Bernanke has tripled down on Greenspan-esque policies, wagering massive amounts of future U.S. savings' on policies that theoretically could have a chance of at least helping if this were a cyclical downturn, without massive job loss of a permament nature. But this is a structural economic breakdown, with massive job loss of a permanent nature, and keeping interest rates suppressed for extended periods of time will not increase consumption and demand. This isn't rocket science, yet Bernanke is literally showering sickly banks and absolutely criminally incompetent Wall Street with all sorts of free rider cash as a consequence of his very inefficient and malfeasant policies.

Bernanke has set us up for a catrastrophic fall.

Sun, 12/12/2010 - 08:04 | 799909 daveM
daveM's picture

Bernanke is doing what he has been allowed to do. For some reason, people want him to continue to fleece the people.


My suggestion at this time is to establish an index as to what it costs for a bank to buy a politician or a high ranking government official... and then to measure each politician's price against the index to see if he is performing well.

Do NOT follow this link or you will be banned from the site!