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Guest Post: How the NY Fed Gifted An Extra $15.7 Million To Wall Street Yesterday

Tyler Durden's picture


From Bob English

How the NY Fed Gifted an Extra $15.7 Million to Wall Street [Yesterday]

As part of the Federal Reserve's ongoing QE2 program, nearly each day,
the NY Fed purchases US Treasury securities from a select group of primary dealers
in what is called a permanent open market operation (POMO).
Ordinarily, the auction begins at 10:16 am and ends at 11:00 am Eastern.
While the exact mechanics of the operations are not public, the NY
Times published an article about the team that manages them here, divulging a few details, which we subsequently analyzed here.

minutes before [yesterday]'s auction was scheduled to complete (while most,
if not all, offers from the primarily dealers were presumably in), the
European Union’s energy commissioner warned of
‘further catastrophic events’ at Japan’s stricken nuclear power plant.
Shortly thereafter, the NY Fed cancelled the POMO--to our knowledge, an
unprecedented act. According to Tyler Durden of Zero Hedge, Reuters reported the cancellation at 10:57 or 10:58 am.
the minutes that followed, equities and other risk markets tumbled,
while the very 5 and 7 Year Treasury Notes the Fed would end up buying
surged in price over 50 bps (0.50%). At 11:24 am, after prices had
settled a bit (though were still materially higher than before), the NY
Fed restarted the POMO, which finally closed at 12:04 pm. It would end
up purchasing a total of $6.580 billion in Treasury securities (reported
at par), with a heavy concentration in the 5 Year tenor at $5.089
billion (of which $3.209 billion had been issued by the Treasury in the
last two months).
Using 5 Year Note futures as a
proxy, we have calculated the difference in average price between what
the NY Fed would have paid had it not cancelled the first auction versus
what it actually ended up paying: $15.7 million ($12.1 million for the
5's and $3.6 million for the 7's). This amount was simply pocketed by
the primary dealers and is now a liability of the Federal Reserve, and
putatively the US taxpayer.
The below chart illustrates the sequence of events with the 5 Year Note futures (click for large image).
is now incumbent upon the NY Fed to issue an explanation detailing its
decision making process [yesterday]. Just why did it cancel the auction when
prices were starting to move in its favor (against the dealers)? If Mr.
Frost, who supervises the purchase operations at the NY Fed, was telling
the truth when he told the NY Times, "We are looking to get the best
price we can for the taxpayer", then why did the opposite occur [yesterday]?
Zero Hedge has chronicled how the Fed serially purchases the richest
spline in its operations, to the benefit of the primary dealers (see here, here, here, here, here, and here). We also reiterate and incorporate herein our previously expressed concerns
regarding the NY Fed's black box computer program that virtually runs
the Fed's daily auctions. Just who programmed it, and how does it
assess "fair value"?
As is usually the case with the Federal Reserve, there are more questions than answers.
Update: Reuters has backtracked with the following:

EU Energy Commissioner did not say a catastrophe was going to happen, he just expressed his fear - spokesman


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Thu, 03/17/2011 - 07:50 | 1065869 hugovanderbubble
hugovanderbubble's picture

POMOs are illegal

Eliminates the free-market path


Good Job English

Thu, 03/17/2011 - 08:12 | 1065938 Sudden Debt
Sudden Debt's picture



Thu, 03/17/2011 - 22:01 | 1069647 rocker
rocker's picture

Then why do they milk me dry before I get to even Fuck ?

Thu, 03/17/2011 - 22:02 | 1069654 rocker
rocker's picture

I think I figured it out. I was last in.   Hmmmmmmm.

Thu, 03/17/2011 - 07:57 | 1065895 gordengeko
gordengeko's picture

Lets just buy up all the damn physical silver already and end this fucking sham.

Thu, 03/17/2011 - 08:51 | 1066054 Tortfeasor
Tortfeasor's picture

Hell no, this is outright theft!  Can it get more's not enough to passive-aggressively buy silver.  This should be brought to the attention of every congressman out there.

Thu, 03/17/2011 - 09:40 | 1066155 savagegoose
savagegoose's picture

the prob isnt the buying silver , its not only accepting payment in silver.

as a free sovereign man, we can declare what form we take payment in, so just say fuck it i only take payment in silver dollars. and refuse to accept paper.

sure you end up in jail but hey what if everyone starts doing it?

now to write my nasty email to the dept of health and nutrition, saying i want my food stamps printed in silver from now on.

Thu, 03/17/2011 - 09:55 | 1066329 RockyRacoon
RockyRacoon's picture

You actually can accept any form of payment you like, but if offered USD you'd be obliged by law to accept them in payment of debt.   If you put up a sign saying that you accept silver/gold/avocados for payment you'll get no trouble from the Treasury/AG/FBI.   Yet.

Thu, 03/17/2011 - 07:56 | 1065897 Judge Judy Scheinlok
Judge Judy Scheinlok's picture

If you take away the tit the whole things going to crumble.

Thu, 03/17/2011 - 08:13 | 1065943 Sudden Debt
Sudden Debt's picture

we need tits, we can't do without...


Thu, 03/17/2011 - 08:15 | 1065948 Zero Govt
Zero Govt's picture


....take away the tits and the baby fed adults of WS will throw their toys outta the pram, wake up to reality of their State dependency and crap their nappies (in no particular order)

Thu, 03/17/2011 - 07:56 | 1065898 plocequ1
Thu, 03/17/2011 - 08:27 | 1065964 Zero Govt
Zero Govt's picture

oily lttle oik Timmay Gitner says it'll have "catastrophic" consequences for the economy if the debt ceiling is not raised and the country defaulted on its debt obligations

...Timmay suggests kicking the can down the road with even more debt in the can is going to do what precisely for this catastrophe of debt obligations???

Answers on a postcard to: 'Jobs for Clowns, Retards, and the Numerically Challenged', Treasury Mountain of Debt Dept., Washington WC, Postcode. USA RIP 

Thu, 03/17/2011 - 07:57 | 1065901 jkruffin
jkruffin's picture

Price manipulation is illegal right? So why isn't the SEC filing charges on Bernanke for illegal price manipulation? That is exactly what he is doing every day.  Oh, I forgot, the SEC is too busy watching to do anything in the markets anymore.

Thu, 03/17/2011 - 08:01 | 1065911 Larry Darrell
Larry Darrell's picture

What's extremely sad is today, I will print this article and hand it to at least 2 dozen people.

Only 1 will understand what's going on.

Thu, 03/17/2011 - 08:21 | 1065966 Sudden Debt
Sudden Debt's picture

I gave a presentation on monday about economic forecasts.


I told them 2 things:

1. A 10% growth when you have a 20% price increase because our suppliers did so isn't a good thing.

   ( I was not able to get that message through, for them the price increases didn't link up to the "extra sales" )

2. Economic stability is here because:

   A. Companies are stocking up

   B. Commodity explosion forecasts to the upside due to inflation

   ( I was not able to get that message through, nop... it's because all the problems where solved a long time ago according to them and

   people now see that the crisis was a hoax orchestrated by the big banks to get more money)

   (Inflation is going to change into deflation so it doesn't matter)


I really felt like smacking them with a book a few times for all the idiotic responses I got...

NONE of them knew anything about the economic situation of the EU or even the US.




Thu, 03/17/2011 - 08:47 | 1066042 prophet
prophet's picture

Corporate Truthers!  They have found a path to reinforce their beliefs.  How novel.

Thu, 03/17/2011 - 08:28 | 1065984 UGrev
UGrev's picture

You really can't blame them. Fuck dude, I don't even understand it all. I'm not a trader. I don't understand all this POMO shit and I can't seem to find a "POMO for dummies" book out there. I read C# all day long.. see little 1's and 0's floating across my screen. You guys live and breathe this shit. I bet if I handed you a block of code that used reflection to ascertain the value of an attribute defined on a property of the object being reflected, you wouldn't have a fucking clue what I was talking about. Unless you're a programmer. 

You see, this monster has gotten SOOO complex that the everyday Joe: 

  1. doesn't have the time to learn about it when he has to learn and update his skills for his career
  2. is busy with family
  3. is totally unaware of even the high level screw job. 
I fit firmly in #1 and #2. I stay up to 2 AM reading shit from MSM and comparing it to ZH and trying to dig through the lies and deceptions. I glean enough from the comparison to know that the gov't is shoving a Texas sized chicken up my ass sideways, but I don't understand the complexities and nuiances involved in how they're doing it. I know I have an asshole...but it's not like I can rotate my head 180* and bend over backwards to inspect it to see just how they're shoving that chicken in there.  So if someone has the time, I'd love a retard version of this so I can sing along with you all. 

Thu, 03/17/2011 - 08:40 | 1066023 Seasmoke
Seasmoke's picture

thats what mirrors are for.......just squat down , spread them and enjoy the scenery

Thu, 03/17/2011 - 08:45 | 1066040 UGrev
UGrev's picture

Too much smoke... 

Thu, 03/17/2011 - 08:50 | 1066050 gordengeko
gordengeko's picture

Ugrev, start with researching where the FED came from, how it came to being and who's behind it.  Forget about trying to understand the comlpex ways they are screwing the avg U.S. human resource.

Thu, 03/17/2011 - 08:55 | 1066062 prophet
prophet's picture

Most "everyday Joes" I talk to know its all bad.  The thing they can't understand is why people spend so much time trying to understand and explain in never ending detail why things are so and bad and maybe even worse.  They say life is too precious for that.  They are not complacent but certainly resigned to the facts.  The real impetus of these wake people up streams is misguided in that people know there are shenanigans that need to stop but there is not a well enough coordinated effort that is straightforward enough for the everyday Joe to join.  That is why the Tea Party took off, its was easy enough to do.

Thu, 03/17/2011 - 09:17 | 1066160 GoinFawr
GoinFawr's picture

UGrev- thanks for the chuckle. Sing along to this

"Everybody Knows"

Thu, 03/17/2011 - 10:07 | 1066375 UGrev
UGrev's picture

I'm always good for a chuckle ;) esepecially with all this dooooom!

Thu, 03/17/2011 - 11:28 | 1066715 EB
EB's picture

POMO for Dummies.  Good suggestion.  Actually, we need a Market Intervention Wiki.  

Thu, 03/17/2011 - 11:48 | 1066808 malusDiaz
malusDiaz's picture

Here ya go mate, and its my kind of retard video:  (BTW I'm a C++ / C# programmer as well)

Part 1:


Thu, 03/17/2011 - 08:04 | 1065919 pendragon
pendragon's picture

this has ceased to be news. taxpayer rape is the name of the game.

Thu, 03/17/2011 - 08:13 | 1065946 Sudden Debt
Sudden Debt's picture

yes... Vaseline is becoming a basic necessity...


Thu, 03/17/2011 - 08:19 | 1065959 hugovanderbubble
hugovanderbubble's picture

+ 1


I need two tubes¡:)


Thu, 03/17/2011 - 08:23 | 1065974 Sudden Debt
Sudden Debt's picture

Thanks for the order!

And because it's "fuck the customer day" YOU GET A FREE BUTTPLUG TO GO WITH YOUR ORDER!


Thu, 03/17/2011 - 08:07 | 1065927 Die Weiße Rose
Die Weiße Rose's picture

Operation Date: 03/16/2011

Operation Type: Outright Coupon Purchase Release

Time: 10:16 AM Close Time: 11:00 AM Settlement Date: 03/17/2011

Maturity/Call Date Range: 03/31/2015 - 08/31/2016

                   Auction was Cancelled

Due to the market's volatility at the close,

this operation has been cancelled.


A new operation will be released shortly.

fuck you, fucking Fuck Bernank,you lying snake !


Thu, 03/17/2011 - 08:08 | 1065930 gwar5
gwar5's picture

Happy St Patrick's Day to all.

Corned beef and green beer today before we devolve into a third world country.

Thu, 03/17/2011 - 08:36 | 1066009 jimijon
jimijon's picture

May the saint flush out all the snakes in that pit called the Fed.

Thu, 03/17/2011 - 09:01 | 1066093 chindit13
chindit13's picture

May your last check bounce.

Thu, 03/17/2011 - 08:10 | 1065933 The Real Fake E...
The Real Fake Economy's picture

I discovered about 3 years ago this month that the game was rigged (when I got burned going long bear stearns)  Though I wasn't sure exactly how the game was rigged I just knew it had to be!  This site has provided such wonderful insight and analysis, the likes which you can't find anywhere else.   

keep up the great work TD and everyone else who provides insightful and intelligent commentary!

i'm in China, but ready to hop on the next flight when you guys are ready to whip out the pitchforks.  let's start with pompous blowhard bernanke, followed by smug face dimon and finally high pitch eric's long lost brother lloyd blankfein.    

Thu, 03/17/2011 - 08:10 | 1065937 max2205
max2205's picture

Quoted by MSM?.... getting closer to being MSM but hopefully changing that stereotype as well...congrats

Thu, 03/17/2011 - 08:13 | 1065944 csmith
csmith's picture

Because the New York Fed and the Primary Dealers are one in the same. End of story.

Thu, 03/17/2011 - 08:17 | 1065958 The Axe
The Axe's picture

WELCOME to yet a another DOLLAR DOWN  you can buy stocks...STOCKS UP. The BenDICK can drive the dollar to shit..he can make the DOW gp 36,000

Thu, 03/17/2011 - 08:23 | 1065969 hugovanderbubble
hugovanderbubble's picture

Yes, forget all the haircut.or forgiven debt program schemes....


The problem is ExtraLeverage in the market with no Mark to Market Valuations.... (in REITS,MBS,Sovereign Debt)....Hybrids....what else...

"its like we are living a lie"

Ok go ahead...

The only things wont crash till these debt haircuts appears will be hard assets....

Thu, 03/17/2011 - 08:26 | 1065972 John Law Lives
John Law Lives's picture

I believe the Fed and Wall Street would have more credibility with the American people if they just came out and openly admitted the game was rigged.  As it is, we know the game is rigged whilst those hubristic corksuckers laughingly hide behind the façade of claiming to add value to our lives.

Thu, 03/17/2011 - 08:27 | 1065981 Catullus
Catullus's picture

Being a bond trader for a primary dealer has to be the easiest job on the planet.

Thu, 03/17/2011 - 08:31 | 1065994 Cursive
Cursive's picture

It is now incumbent upon the NY Fed to issue an explanation detailing its decision making process [yesterday].

Will Bob English now be contacted by the office of SIGTARP the way that A99 hacker OperationLeakS was?  The guillotine can't move quick enough to rid us of this bankster curse.

Thu, 03/17/2011 - 08:36 | 1066011 LawsofPhysics
LawsofPhysics's picture

The financial sector remains a cancer that the broader sectors of the economy can no longer support.  Nothing has changed.  All that paper will be worthless soon enough so what.  Personally, I can not wait for the system crash.  It will be nice to see compensation return to those who are actually worth a shit.

Thu, 03/17/2011 - 08:41 | 1066021 LongSoupLine
LongSoupLine's picture



Isn't today a Treasury $25B SFP injection as well as the "normal" ponzi POMO?

Thu, 03/17/2011 - 08:56 | 1066064 Revolution_star...
Revolution_starts_now's picture

"How the NY Fed Gifted An Extra $15.7 Million To Wall Street Yesterday"

This isn't news, this is the feds purpose. It's the only mandate the fed will ever exercise. Show me a problem and the fed will show that the only solution they will ever have is to give banks money. Period.

Unemployed? give banks money

Recession? give banks money

Banking crisis? give banks money

Raining today? give banks money

How many times do we have to watch this total bullshit and financial rape of the american system before we turn on the parasites that is the current banking system?

Your choice is revolution or check out of the system. Gold and silver will not protect you from these monsters, they will take a pen and make you a criminal if need be.

If you want to preserve wealth in this country, you must not only protect yours but the wealth of your neighbors. The fed only offers 2 solutions to our current problems, submit or suffer. We all know there is a 3rd solution, to kill the monster. Death to parasites, death to the fed.



Thu, 03/17/2011 - 09:02 | 1066099 plocequ1
plocequ1's picture

If one is unemployed and has no income? How does one pay taxes? What are they going to tax?

Thu, 03/17/2011 - 11:52 | 1066824 malusDiaz
malusDiaz's picture

Tax your Food Stamps and Unemplyment of course!


Then give you a loan to pay those taxes, at 0% APR* (Some restrictions apply)!

Thu, 03/17/2011 - 09:24 | 1066205 John Law Lives
John Law Lives's picture

<<<  Gold and silver will not protect you from these monsters, they will take a pen and make you a criminal if need be. >>>

Wisely spoken.  People should not assume private ownership of gold and silver hordes will be allowed by The Machine when that great R-E-S-E-T button gets pushed.

Thu, 03/17/2011 - 08:57 | 1066073 prophet
prophet's picture

When we get there and the banks look like Unit 3 POMO clawbacks won't be worth much.

Thu, 03/17/2011 - 08:59 | 1066083 AldoHux_IV
AldoHux_IV's picture

This is precisely why we need to end the fed-- as a taxpayer there is no way I'm going to be responsible for the dealings of a mad chairman and his idiotic minions much less let the banking cartel (criminals) continue to get away with economic genocide.

Thu, 03/17/2011 - 09:32 | 1066238 cranky-old-geezer
cranky-old-geezer's picture



Thu, 03/17/2011 - 10:08 | 1066374 RockyRacoon
RockyRacoon's picture

And you could barely live off the interest on that $15 million since they are taking that away from savers as well.   Taking with both hands they are.

Thu, 03/17/2011 - 09:35 | 1066252 Overpowered By Funk
Overpowered By Funk's picture

When will our day of rage come? How much more of this are we gonna take?

Thu, 03/17/2011 - 10:08 | 1066379 RockyRacoon
RockyRacoon's picture

Why do you thing UE bennies are extended, SNAP is a snap, and Social Security is not on the table?   Take $1 from any of those and the U. S. is on the edge of the precipice.

Thu, 03/17/2011 - 09:47 | 1066298 chindit13
chindit13's picture

After the US entered Iraq, I lost track of why Bush decided to invade.  Of course, he couldn't remember either, nor did he ever figure out what would constitute "victory".  Wasn't it WMD or spreading democracy or going after al Qaeda (by luring them in for live fire training camps) or because Saddam was a bad guy (though the CEO of Halliburton headed the US firm doing the most business with that bad guy from 1995-2000)?  One of those, maybe.  Anyway, I still can't remember the reason.

QE is similarly befuddling, maybe even more so.  For the life of me I can't remember any longer why Bernanke does it, what good it had done the nation, nor why he must continue doing it.  The best I can recall is that it has something to do with keeping a strong bid under Hampton's property and motor vehicles from Maranello.  Anyway, I'm not seeing any of the dough, and no one save for Wall Street has seen any of it, so if I'm confused I've got 308 million fellow Confusions.

If I may speak on behalf of the 308, we'd like to know what the heck it is supposed to accomplish, if that's not too much to ask in a supposed democracy.  Maybe if all 308 million of us walked up to the door of the Marriner Eccles Building and asked?

Fri, 03/18/2011 - 00:11 | 1070024 GoinFawr
GoinFawr's picture

Capital idea

Thu, 03/17/2011 - 10:04 | 1066362 The Count
The Count's picture

i hope nyc has enough lamp posts to string all these guys up when the day of reckoning comes...

Thu, 03/17/2011 - 10:11 | 1066388 Downtoolong
Downtoolong's picture

The Mafia must be feeling sooo lame these days. Even they never imagined stealing like this.


Thu, 03/17/2011 - 11:58 | 1066856 Lothar the Rott...
Lothar the Rottweiler's picture

The Mafia has an honor code - break it and you're in trouble; Wall Street, not so much.

Thu, 03/17/2011 - 11:14 | 1066641 Bansters-in-my-...
Bansters-in-my- feces's picture

Sach's of Fucking Shit........

Hang the bunch of them.

Thu, 03/17/2011 - 13:17 | 1067200 SilverFiend
SilverFiend's picture

It is past time for the spark to set this place on fire!

Thu, 03/17/2011 - 20:37 | 1069278 Fiat Money
Fiat Money's picture

the Fed IS TREASON - it is a FOREIGN ("multi-national") BANKING CABAL  that practices SOCIALISM for member/owners,   COMMISSAR theft & seizure for the public who must pay for the Fed's DEBASING of OUR savings, investments, & pensions. 

    Actually, what is really quite amazing about the Fed, is that EVERY UNIVERSITY & college in America is PART of their PROPAGANDA WHITEWASH criminal protection racket! 

  NOT ONE  university in America (whether the finance department, econ department, political science, journalism, or any other)   bothers to EXAMINE the FREE MONEY the Fed DISHES OUT to member/owner bankers, money which "normal" banks and businesses can NOT compete against.

    Imagine that you are Moe's business supply, and are slightly better, more efficient, and reward your  customers & employees better (they are more loyal) than your competitor across town.  But HE has ACCESS to  FREE MONEY from the Fed, and can literally SURROUND your business with new branch locations.  Eventually,  his FREE MONEY access will overcome your efficiency and customer & employee loyalty... especially if  his bankers are tied in with the larger business community, and the word is put out that there is something "wrong" with your operation.  (A classic smear,  as JP Morgan is alleged to have INCITED the PANIC run on Knickerbocker bank in 1907.) 

   There you have it.  What the Fed, Wall Street, and the nation's business, econ, finance, journalism, & poli sci schools call "FREE MARKET ENTERPRISE"  is actually a "FREE MONEY FOR US,  dregs, pennies, and bankruptcy for you" cabal.

Thu, 03/17/2011 - 20:49 | 1069359 Fiat Money
Fiat Money's picture

p.s.:  Those who hold GS, JPM, Citi, or any of the other "TBTF" financial stocks (and bonds) DESERVES to see them GO TO ZERO. 

  The UNSPOKEN argument for "bailouts" is that, not only will the failed, fraudulent, bankrupt banks fail.. but so too will the mutual & PENSION funds heavily invested in them.  "WE MUST SAVE THEM, to SAVE the little guys' pensions"  is the unspoken rational for SPREADING the pain across millions of taxpayers.  

  BUT!  Working stiff Americans sit is a dazed (if not bloodthirsty, co-complicit rage)  shouting "OFF with those GREEDY, entitled UNION members' heads!"   as  criminal governors (literally!) like Scott Walker & Rick Scott go on statewide JIHADS against state employee pension funds.  That is, on top of the Fed, GS, JPM "pump and dump"  relentless big finance SABOTAGE of pension funds, portrayed by Gordon Gecko's hostile LBO buyout attempt on "Blue Star airlines"  (using the company's "OVERFUNDED pension fund" as the base of his hostile LBO attempt!)  in the 1987 movie, "Wall Street."

  So while Wall Street LOVES preying on, and DESTROYING pensions,  they simultaneously try to tug our heartstrings about how dedicated they are  to "saving pensions" with "bailouts" that will benefit the little folk. 

  just nauseating....

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