New York Fed Bringing Mortgage Bond Purchasing In-House, Halves External Managers
In taking a page straight out of Goldman's book of horrendous PR, the Federal Reserve, even as its fate is about to start being deliberated tomorrow, has chosen to throw sand in the eyes of all those who claim its days of secrecy must end, and has decided to beging purchasing the QE allocated portion of MBS/Agency bonds directly from the market using in-house personnel, and bypassing external managers. This way, most information leakage will be prevented, the Fed can buy (never sell) however many MBS it wants while disclosing whatever (if anything) it chooses, with nobody being the wiser, and 30 year mortgage rates continuing their inexorable creep to zero percent. At least the Fed will finally unleash its massive trading desk all over the world, and all those recently hired Fed traders can put their Bloomberg terminals to good use (ironically leaving them with just the biometric tentacleprint unit and a buy button should be more than sufficient).
In today's amendment to the NY Fed's MBS page, the Fed discloses (those two words just don't seem right together) the following:
As of August 2009, the Federal Reserve streamlined the set of external
investment managers, reducing the number of investment managers from
four to two. The New York Fed retained Wellington Management Company,
LLP for trading, settlement and as a secondary provider of risk and
analytics support; and BlackRock Inc. as the primary provider of risk
and analytics support. The program custodian is J.P. Morgan.
The New York Fed anticipated that it would make adjustments to its use
of external investment managers as it gained more experience with the
program. The agency MBS program has matured since it began in January,
and the New York Fed has had time to further develop its internal
analytical and operational expertise in this area. The change in the
number of external investment managers was not performance related. The
New York Fed is committed to implementing its programs in the most
efficient and cost effective manner possible.
Consistent with the continued evolution of the program's operation, the
New York Fed will begin in late November to use internal staff on
select days to execute the program's agency MBS purchases. From an
operational perspective, the New York Fed's trading approach will
replicate the one currently employed by the program's trading
investment manager, Wellington, although the New York Fed will be
trading in its own name. From a settlement perspective, the New York
Fed will continue to leverage the middle office settlement support of
Wellington for any trades executed by New York Fed staff. While the New
York Fed plans to continue to employ the services of outside investment
managers, the New York Fed anticipates that, through the balance of the
program, the trading days on which its own staff conducts the program's
purchasing activity will gradually increase relative to those trading
days on which Wellington executes the program's purchasing activity.
Why beat around the bush Dudley? Why not just announce that you are moving in all equity capital markets activity inhouse: especially the S&P and Russell 1000 futures which you have become so very specialized in. Additionally, in the future you can trade with the Treasury direct, buying their bonds and other worthless pieces of paper direct at par on the dollar, with Goldman picking a 3% vig on both sides of the trade, and having zero days of trading losses in Q4.
Win Win for everyone: Goldman bankers make $1 billion in bonuses each (and btw, Mr. Blankfein, we have gotten advance color of some payments to your head traders: we are confident our readers will be very happy to read what these are, in addition to shortly reading your proxy), they pay $500 million in taxes, the deficit is plugged, Goldman purchases 49 out of the 50 U.S. states (not sure what the mark-to-market on Puerto Rico is: someone please ping MarkIt and find out), with Bernanke throwing in Fiji as an equity kicker, while Conviction Buy Textron provides all Goldman personnel all-important personal Cessnas for that inevitable emergency evac when the pitchforks start appearing in lower Manhattan.