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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.
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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.
Another quote of the day.
In fairness, previous Fed critters did pave the way to the futures pits, notoriously lead by H. Robert Heller.
Price to fantasy will now be price to reality. Or do I have that backwards? ...I thought I saw a bald guy with a tightly shaved beard stapling higher prices at my local Walmart with his RFID gun. Benny boy, was that your helicopter parked in the expecting mother's spot?
I was looking at the the top contributors to my senators by industry and found the listing "Retired" as a contributor. Anyone know who this would be? Any comments on how the monetary contributions of lawyers to congress affect finance?
It doesn't take much to buy MBS for the Fed, since they don't really care what they pay. Check out the prices from March - June - they basically just paid par for the 4s:
our bid is 100-00 for the 4s". "Our bid today is still 100-00 for the 4s". "Yes, we are still 100-00 bid for the 4s".
http://www.bloomberg.com/apps/quote?ticker=MTGEFNCL%3AIND
Well, that's how they funnelled capital to the insolvent banks, right? Buying their turds for shiny prices?
How does one get a job with the Federal Reserve? They appear to be expanding and growing in this shrinking economy. It looks like a great career opportunity.
On another note, what does it tell you that they staffed up a desk to buy MBS. You think they are going to stop buying in March?
No
Way.
Gold
To
2000
and the Fed traders on that desk will sign a Nondisclosure Agreement with a particularly "onerous" breach clause.
Ben Madoff
With Wellington out of the way, the number of Federales who actually know the location and value of the MBS sludge backhoed onto the trading desk shrinks to a manageable number. Next step is to hide the price paid, the origin of the "money" used, and the final destination of the documentation (the deep caverns of Yucca Mountain). Finally, there is a way to file and forget that unfortunate chapter in American finance. Sub-prime crisis? What sub-prime crisis? And millions of new homeowners receiving Trust Deed Reconveyances. God's Work Indeed!
Hop Ching Checkers:
http://en.wikipedia.org/wiki/Chinese_checkers
The expansion of buying MBS/Agency bonds behind the curtain of quasi-government protection such as provided to those in the Federal Reserve System reminds one of the despotic relationship of private companies with the French monarchy just before the French Revolution.
Here’s a description from Gerald Dartford’s “The French Revolution” classic: “One of the worst features of the old tax system was collection of indirect taxes by a private corporation known as the Farmers-General who paid the king an annual sum for this privilege. As a result, a few wealthy individuals kept about one-third of the total collected for their profit and expenses. To retain their contract, the Farmers-General gave large gifts to influential courtiers and ministers, including the Controller General himself.”
Excellent reforms suggested by Turgot, a new Controller General, were turned back under pressure from Louis XVI’s brothers, his courtiers, and Queen Marie Antoinette. When the king surrendered to this opposition Turgot’s words were to prove prophetic:
“Do not forget, Sire, that it was weakness that brought the head of Charles I to the block.”
Is this action within their mandate? What are the limits on the NY Feds power/jurisdiction?
Alexander Hamilton must be smiling, where ever he is.
I think it's important at this point to insure that another Stalin will not emerge.
As the US constitution remains a fabulous document in the ways it created checks & balances, so too should the new financial command system be provided with complementary forces.
[...] 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.
Now, that was my favourite quote of the article!