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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hugovanderbubble's picture

POMOs are illegal

Eliminates the free-market path


Good Job English

Sudden Debt's picture



rocker's picture

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

rocker's picture

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

gordengeko's picture

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

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.

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.

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.

Judge Judy Scheinlok's picture

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

Sudden Debt's picture

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


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)

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 

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.

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.

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.




prophet's picture

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

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. 

Seasmoke's picture

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

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.

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.

GoinFawr's picture

UGrev- thanks for the chuckle. Sing along to this

"Everybody Knows"

UGrev's picture

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

EB's picture

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

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:


pendragon's picture

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

Sudden Debt's picture

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


hugovanderbubble's picture

+ 1


I need two tubes¡:)


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!


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 !


gwar5's picture

Happy St Patrick's Day to all.

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

jimijon's picture

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

chindit13's picture

May your last check bounce.

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.    

max2205's picture

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

csmith's picture

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

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

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....

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.

Catullus's picture

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

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.

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.

LongSoupLine's picture



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

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.



plocequ1's picture

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

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)!

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.

prophet's picture

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

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.