Meet The Fed's POMO Desk... Which Doesn't Even Have Bloomberg Terminals

Tyler Durden's picture

Over one year after Zero Hedge made POMO, and the Fed's open market operations group a household name, and Brian Sack a household curse, the NYT has finally decided to write an expose on the people who are charged with enforcing America's transition to central planning. And they just happen to be the grizzled 40 year old Mr. Sack, a 34 year old supervisor, two 29-year olds and a 26 year old ... who goes to NYU. Yes, ladies and gentlemen, these are the people who are gifting billions in commissions to the Primary Dealers on a daily basis. You see, the FRBNY whiz-kids have a "computer algorithm that works out which [offers] to [lift]. The computer compares
the offers from Wall Street against market prices and the Fed’s own
calculation of what constitutes a “fair value” price." In other words, taxpayers are getting raped during each and every single POMO but that's ok - the Fed's algorithm, probably created by yet another ex-Goldmanite, determines that said raping is "fair" and with absolutely no transparency anywhere in the process, except of course the Fed telegraphing in advance what bonds will be monetized, there is no way to ever check... Because that kind of mutually assured destructive disclosure would mean the financial world would promptly implode in a case study of total protonic reversal. After all, only smart people (and we are talking Wall Street smart) can handle the responsible truth... of daily Primary Dealer Subsidies.

Behold what the nerve center of 21st century central planning looks like. Note the abundance of Bloombergs:

Blake Gwinn, left, and James White in the operations room at the Federal Reserve Bank of New York.

As for the lovely pre-cleared narrative of how a few people run the world on behalf of Wall Street, pardon, revive the economy, here is the spin, courtesy of the NYT's Graham Bowley.

In a spare, government-issue office in Lower Manhattan, behind a bank of cubicles and a scruffy copy machine, Josh Frost and a band of market specialists are making the Fed’s ultimate Wall Street trade. They are buying hundreds of billions of dollars of United States Treasury  securities on the open market in a controversial attempt to keep interest rates low and, in the process, revive the economy.

To critics, it is a Hail Mary play — an admission that the economy’s persistent weakness has all but exhausted the central bank’s powers and tested the limits of its policy making. Around the world, some warn the unusual strategy will weaken the dollar and lead to crippling inflation.

But inside the Operations Room, on the ninth floor of the New York Fed’s fortresslike headquarters, there is no time for second-guessing. Here the second round of what is known as quantitative easing — QE2, as it is called on Wall Street — is being put into practice almost daily by the central bank’s powerful New York arm.

What exactly is the Operations Room task? Why to gift huge bid/ask spreads to the Primary Dealers of course, making sure that bonuses of traders in the govvie desks of the PD crew are well padded, and those same people continue to cooperate in the pumping of the ponzy pyramid. But in NYT speak, this is known as getting the "best possible price" - too bad this is the best possible price for Goldman, not for Joe Sixpack, who is unaware that the bent over Vaseline treatment proceeds daily with every single POMO, which directly funnels tens if not hundreds of millions of dollars to the Primary Dealers (we don't know - you see the Fed does not disclose the asking prices that ultimately are lifted, contrary to what the NYT will have you believe.

Each morning Mr. Frost and his team face a formidable task: they must try to buy Treasuries at the best possible price from the savviest bond traders in the business.

The smallest miscalculation, a few one-hundredths of a percentage point here or there, could unsettle the markets and cost taxpayers dearly. It could also embolden critics at home and abroad who say QE2 represents a dangerous expansion of the Fed’s role in the markets.

“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.

Unfortunately, the best price for the taxpayer is one which results in billions in commissions to Primary Dealers at the end of any given QE program (and there will be many after the current one is done).

Louis V. Crandall, the chief economist at the research firm Wrightson ICAP, said Wall Street bond traders were driving hard bargains. The Fed has tipped its hand by laying out which Treasuries it intends to buy and when, giving the bond houses an edge.

“A buyer of $100 billion a month is always going to be paying top prices,” Mr. Crandall said of the Fed. “You can’t be a known buyer of $100 billion a month and get a good price.”

Nevertheless, Mr. Frost and his team have been praised on Wall Street for creating a simple, transparent program. Neither the Fed nor Wall Street want any surprises. The central bank is even disclosing the prices at which it buys.

Mr. Frost and his team work out of a small, beige corner office with arched windows that used to be a library. There, at about 10:15 most workday mornings, one of them pushes a button on a computer. 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.

On one recent Tuesday morning, what Mr. Frost and his five young colleagues did over a 45-minute period might have unsettled even a seasoned Wall Street hand: they bought $7.8 billion of Treasuries.

As for the actual people who push the buttons to see of this symphony of taxpayer rape, meet 26 year old Tiffany Wilding (who will graduated from NYU in 2013), 29 year old Blake Gwinn and 29 year old James White. These are the people who every day (and in some cases twice daily) proceed to monetize billions in bonds.

The real work is done by three traders who are referred to during the operation as trader one, trader two and trader three. They sit at a long table against the wall, tapping at seven screens.

On one recent morning, trader one was Tiffany Wilding, 26. While she reviewed the stream of offers and then the prices finally accepted by the algorithm, trader two, Blake Gwinn, 29, double-checked her decisions and trader three, James White, 29, made a duplicate of everything in case the computers crashed.

All the while, Mr. Frost stood behind his colleagues, ready to intervene — and even cancel the Fed’s purchases — at any sign of trouble.

Too bad the only sign of trouble is if the Primary Dealers are not extracting their daily allotted ten/hundred million pounds of flesh.

And between the talented Mr. Sack, and the NYU students who actually execute the billions in dollars, there is the mysterious Mr. Frost:

Mr. Frost — a Rutgers math grad who has worked at the Fed for 12 years, lives in the Borough Hall area of Brooklyn and takes the subway each day to work — is fairly well known within the dealer community. He and his team talk to the big banks most days.

The job carries great responsibility and is prominent within the Fed.

So prominent and so responsible... yet his entire QE2 operation has been an abysmal failure - note the rates on the 10 Year today, and 2 months ago when QE2 started. Oops...

Mr. Frost, and his boss, Brian P. Sack, insist the program has succeeded. Mr. Sack, 40, joined the Fed 18 months ago to run the entire markets group. He has a Ph.D. from M.I.T. and worked most recently for a Washington consulting firm. In 2004, he wrote a paper with Ben S. Bernanke, the future chairman of the Federal Reserve, and another economist about unconventional measures for stimulating the economy in extraordinary times — just like large-scale purchases of Treasuries.

“We didn’t know then that the Fed would be putting it to the test,” he said.

He said the Obama administration’s $858 billion tax compromise with Congressional Republicans in December complicated the macroeconomic picture.

But the biggest reason for the rise in interest rates was probably that the economy was, at last, growing faster. And that’s good news.

“Rates have risen for the reasons we were hoping for: investors are more optimistic about the recovery,” said Mr. Sack. “It is a good sign.”

And there you have it: to "prominent and respected" puppets within the Fed, evidence of the the adverse outcome is proof that the desired outcome has been achieved.

With lunatics such as this who needs Kool Aid... and who cares if teenagers with a penchant for Jersey Shore push the "Buy" buttons (also known as Any Key) at the heart of US central planning. After all it is more than clear by now that even Snooki knows to BTFD.

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Nihilarian's picture

Looks like Winthorpe and Mortimore are reading Zero Hedge.

Bill D. Cat's picture

So , ..... what's this Margarattaville worth ?

Mentaliusanything's picture

Poofters - all of them. 

Nancy Boys


Flubbery lipped, small dicked, limped wristed, fudge packers.

Rulers of the Universe, I think not.

Their hands not soiled by hard work, their minds twisted by what they have been told but not thought through. Working brain cells of a smashed Crab. 

Our future? - Fuck that - the unwind (fat tail) is going to stain shit to their underpants.

Mentaliusanything's picture

And is that bald eagle giving me the "Bird" 

(maybe that poof is giving the World the Bird)

More Critical Thinking Wanted's picture


Guys, and this is not rocket science:

“Rates have risen for the reasons we were hoping for: investors are more optimistic about the recovery,” said Mr. Sack. “It is a good sign.”

That is the whole point of QE2, to raise long-term rates. That pushes the yield curve and artificially lowers the short-term rates. (It creates an effective negative interest rate for the shortest bonds.)

You cannot pretend that QE is a "failure" when the whole goal of the thing is to increase long-term rates and to inject inflation (== growth) into the picture again.

Yes, the exit path will be a problem of course, but you guys dont even understand the very first step involved ...

QE will be a failure if deflation takes hold again, if the yield curve flattens again, if the long-term prospects of real growh in the US will be more and more remote.

As Tyler himself said it in the article the exact opposite is happening right now so how can you possibly call it a "failure" with functioning brain cells and with a straight face??

Too much right-wing kool-aid perhaps? "It's the Obama administration hence every measure is a failure, regardless of actual results - q.e.d."


B9K9's picture

I must admit I'm stunned - and that's hard to accomplish.

You come on this board spewing forth your observations & opinions, knowing full well this place is infested with some of the most knowledgeable political & financial operatives & observers, and then you proceed to category declare that:

the whole goal of the thing (QE) is to increase long-term rates and to inject inflation (== growth)

Wow. {Shaking head.} Well, anyway, thanx for that tidbit. I'll keep it in mind the next time I skip one of your comments.

And, oh, by the way, inflation is the net increase in total credit/money aggregates, not an increase in prices and/or interest rates.

The real point of QE, in conjunction with manipulated gov't stats, a full court press by  state-run propaganda, some bread (SNAP, UI, etc) to keep the prols off the street, and some circii (mortgage forbearance courtesy Fan/Fred) to keep them buying, is to restore CONFIDENCE.

That is, to get the sheep once again initiating debt. 'Cause, just like heroin, there's nothing quite like millions/billions of individuals mainlining credit to jump start a dead economy.

DaveyJones's picture

well said. This is a debt based economy based upon a historically unique and soon extinct world of never ending and ever expanding energy and raw resource. It is the only economic world they know. And its going to end soon.  

More Critical Thinking Wanted's picture


And, oh, by the way, inflation is the net increase in total credit/money aggregates, not an increase in prices and/or interest rates.

Long-term inflation expectations are equivalent to the size of money aggregates in a  ZIRP environment only in some tortured monetarist faction's drug-enhanced visions about how modern economies work :-)

That's the main problem of ZIRP traps: the money aggregates stop conveying the Fed's interest rate parameter to the rest of the economy and the Fed is unable to ease efficiently.

There's even historic precedent for that: in the late 90s Japan tried a money-aggregate only intervention and failed to get out of its deflationary trap. It had a (drastically) balooned money aggregate but inflation remained below zero for more than a decade and that trend is continuing as we speak. Against the doomsday "hyperinflation!!!" prediction of monetarists back in those days.

Inflation expectations are what foreshadow growth and it's difficult to measure but there's a strong correlation of most metrics to long-term yields. The Fed does not control long-term rates, it can only "hope" that its signals about inflation will trickle down to the tail end of the yield curve. Failing that it can try direct market intervention to influence the yield curve.

In the period before QE2 the 10Y yield was dropping like a stone, as disinflation went on and deflation expectations got hard-coded in the economy gradually. We actually had the lowest core CPI reading on record, since 1957 - so serious was the situation.

Since QE2 long-term rates/yields have been raising steadily. That is generally seen by the market as a sign of raising growth expecations by various economic players (companies moving from bonds into investments, etc.) and the equities markets seem to show this shift in expectations as well.

Now if you were interested in an informed discussion you might validly question the link of causality during an intervention, but instead you are spewing out paranoid nonsense about some grand conspiracy of the Fed and the evil guvnmint trying to rip off people.

You need to grow up and you need to read more stuff written by people who disagree with you. That way you will at least get their goals and expectations right.


Fish Gone Bad's picture

This is probably not fair, but Tiffany Wilding looks like a grocery store clerk.  Clean up in treasuries in isle 3. 

Rodent Freikorps's picture

I'd hit it.

But, she's not an Ivy Leaguer, so you have to wonder if her tramp stamp says Patsy, or Scapegoat.

Mentaliusanything's picture

Trained by  

DePauw University. 

Thats so Comforting - don't you think?

Rodent Freikorps's picture

On August 2, 2010, Princeton Reviewranked DePauw as the #10 party school in the US for the 2010-2011 school year, which includes all colleges and universities.

So maybe she has talents that are not immediately obvious.

Sudden Debt's picture

And somebody dropped a bucket of gold paint the the FED paintshop on the floor. Please clean it up before "inspections" arrive.

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.

Blano's picture

Ok, I admit it, I clicked on her name to see if she was hot.  Didn't see any pics though when I did.

dwdollar's picture

More like Beavis and Butt-head discovered a computer.

TruthInSunshine's picture

I'm putting this here so it's up top -


This article really gets better. There is a 'flowchart' that shows how QE (POMO) works, and it says, and I quote, under step 1:

"The Federal Reserve creates money and credits it to its own account."


But....but....I thought Bernake told Scott Pelley on '60 Minutes' that "the Federal Reserve is not printing money?"

They're just pulling it, wholecloth, out of thin air or their assholes.

And Bernanke is yet again proven to be one of the worst liars....ever.

Hephasteus's picture

Well technically they aren't printing it. They are just creating it and storing it in computers. They don't want to buy HP ink cartridges because that goes to pay for nefarious things.

TruthInSunshine's picture


Bernanke isn't physically printing money.

He's keystroking it, binary style.

He's so clever.

Bill Clinton's "definition of is is" has got nothing on The Berbankster.

Dr. Porkchop's picture

I did not have inflations with that woman.

Moonrajah's picture

That's not my commission on her blue dress.

TruthInSunshine's picture

Did the...uhmmm....soiled blue dress ever really exist, or was it a ploy to get Clinton to admit the deed was done?

Moonrajah's picture

It depends on what your definition of 'exist' is.

Sudden Debt's picture

They are exchanging Sex flicks with the SEC on a peer to peer platform.

knukles's picture

“Rates have risen for the reasons we were hoping for: investors are more optimistic about the recovery,” said Mr. Sack. “It is a good sign.”

I call Bullshit!

The truth shall set ye free... 

The reason rates are rising is excessive monetary stimulus created via the ongoing QE programs resulting in unparalleled record levels of net free reserves in the baking system.
Which (and somewhat over simplistically) if not removed, which will be nigh politically impossible, when velocity increases, which it ultimately shall, will result in inflationary pressures unseen in modern times.
To whit, the recent disparate performance of standard fixed coupon obligations and TIPS.

That's the reason rates are rising at the moment, goosed along by false impressions of an organic, self-sustainable recovery taking hold.

B9K9's picture


Also, this is directed at you Tyler, there is a very good reason why the Fed is leaving so much cash on the PD's tables: P/E valuations would get really out of whack if POMO operations kept lifting prices without concomitant earnings increases. (At least in certain sectors.)

Imagine for a moment if the PD's margins were getting hammered. Lower earnings combined with artificial POMO prices would begin to make the markets look overvalued. This way, price/earnings seem to increase in parallel.

Michael's picture

Not meant for your consumption, distribution, or publication.

The Israel Project's 2009 Global Language Dictionary


No Hedge's picture

no wonder they don't have Bloomberg....they usually look at some bond buying and that is is because of cost,recession?

Dr. Porkchop's picture

What's that in the back, an old white Dell Optiplex from 1998? The whole setup looks ghetto.

Captain Kink's picture

that's the funniest shit I have read in a while, thank you.

flacon's picture

At least I don't see any CRT displays. But dang, those LCD monitors are THICK! So 2008! 640 x 480? Can't even watch porn on them things - oh... that was the SEC who did that. 

Dr. Porkchop's picture

You'd think that when you're conjuring money out of thin air everyday, you'd have a better setup:


The banality of evil.

rocker's picture

Why would they need Bloomberg Terminals.  Godman Shafts and Co. never have a bad month. They manipulate and decide all.  They just short what's over bought and go long and push up what is under bought. Rinse and Repeat. 

LongSoupLine's picture

Nope...that's an Xbox 360.  After all, what else are they going to do from 11:15 till end of day?

flacon's picture

You ask too much. Just ask the SEC what they do on their computers all day.... 

Ratscam's picture

Dell Optiplex with floppy drive!

Cash_is_Trash's picture

From Ghetto to Banking Cartel. Simple semantic word play meaning legalized financial rape.

Arch Duke Ferdinand's picture

Same Federal Reserve staff are members of this Ipad concert band.

When do they have time to practice?

mynhair's picture

AT 286/370, bitchez!

(370 Cobol compiler disks available on request.  Don't think SAFECO ever noticed I downloaded them.  Hell, they never knew what a 286/370 was capable of, back then.)

RexZeedog's picture

Don't laugh - a good programmer writing with MASM and C on a DOS platform could do more with a 286 than most PCs can do today owing to all the bloatware they ship with.

mynhair's picture

I ain't laughing.  Didn't even need MASM (there was no C back in my time) to violate every security doctrine they had.  A 4361 on hand helped.  I figure they went TU because I quit, and they were then dependent on the clods in the 'systems dept'.

I may have stayed at 4x my salary, but maybe not.  Been retired since.

18 yrs 39

Min SS quarters and a pittance into Medicare, keep working, you wage slaves!

cranky-old-geezer's picture

You mean real 360 / 370 Cobol on a Windows PC?   How nostalgic that would be.

Typing turned out to be the most useful course in high school, especially when coding Cobol.  Still remember the tinny clack of those IBM (3270?) terminal keys ...and we could adjust the "clack" intensity :)

Id fight Gandhi's picture

Even more disappointing than the wizard of oz's picture

That's a horse of a different color.