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Observations On Inside Information Leakage By The Federal Reserve
An interesting letter posted today by a reader on Jesse's Cafe Americain caught our attention. As the reader proposes, on many occasions during the UST period of Q.E. between March and November, the Fed may have well been front-run by one or more "players" casting serious doubt on not only the integrity and propriety of the Q.E. process, but on just how much potential "leakage" may be occurring from the 33 Liberty office on a daily basis. If this occurs in Treasuries, one can be confident that it is also prevalent in equities, MBS and all other asset classes. Is it high time for the SEC to take a long, hard look at the primary source of market manipulation- the Federal Reserve Board Of New York? If not, can Mary Schapiro please approach the public with a referendum vote on whether or not she should be entitled to continue collecting hundreds of thousands of dollars in taxpayer money for continuing to do nothing.
I used to work for a BB on a prop desk until the financial crisis took
hold and they fired the less senior guys on the desk. I now trade US
Treasuries, for a small prop firm in xxxxx, to scalp basis trades in
mostly on the run securities. Occasionally, I will also take position
in the repo markets for off the runs if I see something "mispriced."
Your recent article piqued my interest because we too have noticed
"shenanigans," of sort, in the QE program of USTs.What we
noticed, especially in smaller issues like the 7 Year Cash is that
before a Fed buy back would be announced the price would pop
significantly as buyers would run through all the offers on two major
electronic exchanges (BGC Espeed and ICAP BrokerTec). This occurred
more than several times as the 7 Year Cash would be overvalued both by
its BNOC by 20-30 ticks and its relative value to similar off the runs.
This buyer(s) would lift every offer they could, driving the price
substantially above its "value" for sometimes a week at a time. After
this buying would occur, the Fed would then announce the purchase of
that security sometimes a handle above its approximate value. This
"luck" did not just occur in the on the run 7 Year sector, it also
occurred in the 30 Year Cash, 3 Year Cash, and more than several off
the runs. Again, it was especially prevalent in the less liquid
treasury products. Often the "appetite" for these securities would
begin approximately 2 weeks to 1 week before the official Fed
announcement. The buying was well organized and done in such a way as
to completely knock it off kilter from its relationship with like cash
Treasurys and the CME Ten Year Contract. If you examine the charts of
some of the selected buy backs before the official announcement, you
will see a similar occurrence.While I have not broken this down
into a paper to prove it (and I see nothing positive coming out of
contacting the ESS-EEE-SEE about this issue), I can assure you that it
was occurring on a consistent basis across the entire curve.A
certain issuance would be bid up through the market (substantially
above value, as derived by several metrics) only to be later gobbled up
by the Fed at the unreasonable price. These player(s) had substantial
pockets as we, the small guys (but with a decent capital base), would
take the other side of what seemed to be an obvious fade. While this
did not occur in every single issuance of the QE program, it occurred
often enough to be obvious to any learned observer.While I am
not sure if this can be attributed to purposeful Fed policy or someone
at the Fed talking to his pals, I am certain it transpired."
As Jesse points out, and as we have claimed on so many occasions, "Corruption is inevitable when the government is engaged in manipulating
the markets with public monies. That portion of the Fed's activities
needs to be scrutinized by the GAO on a continual basis. And the
activities of the Exchange Stabilization Fund and the Treasury in
market intervention should be subject to review by the legislative
branch on behalf of the people."
h/t Mike
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Corruption in government is inevitable. Period. Anyone who imagines that a government function that oversees the value of money itself could not be totally corrupt is a fool.
+2T
So when you see the corruption or surmise its occurrence...you do what? ignore it...? fuck that....up the risk/reward...punish it hard...RICO with teeth...claw back their intestines
Na you could just limit sizes of things and minimize damages but everyone percieves tribal or local life to be "inferior" and less advanced. They are inferior and less advanced becuase they can't have world wars all the time and just how are you supposed to be a big shot or feel powerful if you can't drag an entire world into war. That's small time thinking and limiting. The putting corporations 3 thousand miles away and customer support 8 thousand miles away and hiding behind a wall of automoton machines is much better system for taking advantage of people and doing it at a safe distance since only "terrorists" and CEO's will fly in planes before long. Just gotta make a few more games and do a few more cutsey things to get people to trust machines more than people and then just hide behind them and screw them over at will. Machines aren't evil. They are just emotionless beings unable to satisfy anything human or normal like our leaders have become. You should visit thier "dry place" it's like a meat processing plant of judgement and accusation where everybody and everything is wrong. Just what a know it all leader needs to have working in the background. Laying down suppressive fire.
You couldn't get away with this type of behavior in a face to face marketplace. But in a call center at an undisclosed location you can regularly employ CIA behavior control techniques where you aggressively assert you're right. This lady should be saying my name is Toby instead of Kunta Kinte before this is all over.
http://failblog.org/2010/01/20/comcast-fail/
You see all the little abusive periods of human history will all come together into a synergy that is greater than it's parts.
Bernanke is toast. Obama nominated him and now his own party is bailing on the nomination. Obama's caught in the middle. It will be "suggested" by someone (Rahm, are you listening?) to Helicopter that he resign for the "good of the country." Bernanke really won't be looking for 6 more years of constant bashing and oversight by Congress every time he tries to breath.
What's the over/under on BB moving to Switzerland in a month or two?
The wink-wink scratch-each-others'-backs behavior of the FED is the means by which they attain their goal of low interest rates in mortgages and treasuries.
These instruments cannot garner the interest nor maintain their targeted yield without appealing to the venal self-interest and short-termism of large market players. In effect, the FED is engaging in illegal and extralegal subsidization using the taxpayer as bagholder to effect policy.
Somehow this seems outside their mandate of low inflation and high employment.
Recently they floated a white paper that had a mathematical construct that "proved" the deleterous financial effect on the sovereign USA of an AUDIT of the Fed.
Similar tactics should be employed to "prove" mathematically that inside information/trading are driving methodic yet randomly impossible guaranteed profit making around OPEX and treasury auctions.
When the FED is meeting their politically bracketed interest rates AND market players are booking windfall profits WHILE the taxpayer (who is without advocate or recourse) is played for patsy, rule of law must be suspended OR prosecution brought.
This system is showing manifold signs of deep distress without tampering. The Fed Wizards have been able in the past to disguise their command-and-control interventions with the market. Today, we see, that the duress and their attempted cures transcend hidden works.
They must defy the free market openly, brazenly, traitorously. God forbid a large sovereign default should occur.
But we now know that no cure can come, what will come is the panic, and (perhaps) it will all stop in one horrific seizing shudder.
A new kingdom is at hand, a despotism of penury.
But the treasury will be laid bare.
http://www.bis.org/about/board.htm
Ah yes... the vacancy at the Chairmanship of the BIS in Basel that they are holding for him... a fitting position for a man of his immeasurable talents.
He will have to wait until after the fall 2010 midterm elections so the newly bought off politicians can confirm the nomination of Lloyd Blankfein as the new Chairman of the Federal Reserve.
He probably has such aspirations. I think it entirely possible though, that he may end up in the worst bunk in Madof's cell block.
Its pretty tough to play against the house. This casino is quickly becoming a gulag.
Good post. As of last June, 50% of ALL of the liquidity in the markets were lost, redeemed, of pulled out of the market. If, by some estimates, only 30% of the existing trading in the markets is now present, and again by some estimates, 70% of that volume today is being dominated by the likes of 33 Broad, HFT's, quants, or in the above mentioned post, the government controlled or manipulated entities -- then tell us, how does anyone properly manage risk? Answer: You don't, or can't. When you artificially manipulate a market, all normal correlated models are significantly compromised. One is then left with chance or randomness. Not the high probability investing we all are trained to maintain. We think these markets are in a lot of trouble. Peel back the onion, and we have the same underlying problems we experienced in the 2008-09 crash. This is not healthy.
In a certain sense, this information is water under the bridge. Insofar as justice is concerned, it is always applied, if ever, after the fact. Extensive hearings into the '29 crash didn't occur until 4 years later. (Shortly after the sea change that took place during the '32 elections.) Likewise, 2010-2011 seems to be an appropriate timeline to begin examining 2007-2009.
However, the real take-way point is that the era of unfettered monetary manipulation has come to an end. That means only one thing: the debt-deflation tsunami that was temporarily held back for 10 months, with something along the order of $5-10T of public funds committed to the cause, will now resume its forward surge.
This time around there isn't going to be any more interference in the price-discovery & asset/risk pricing mechanism aka Mr Market. Housing will reach an equilibrium with income (for those still employed); public & private pensions will be found to be insolvent; governments ranging from local municipalities all the way up to .gov itself will find themselves in a state of bankruptcy.
If I were a criminal, I might be somewhat worried that there would even be a remaining functioning judicial system in which to prosecute my sorry ass. The mob is certainly going to know who they are.
Is simply giving some trillions via an entry in an account such as Ben and Hank and timmay, have done, really the public's money?
It seems like it is little more than the stuff we used to play monopoly, digitized.
It may have caused some inflation at some levels, and may effect us more down the road but up till now the only difference I note in my own cost of living is the price for my cookies, dark chocolate candy bars, twinkies and ho-hos.
Not that I agree with rewarding insane sociopaths of one specific tribe curiously, with billions in bonuses but it does seem to have had little financial effect. My mental condition however, rages with sound and fury at the criminality of our government selecting one specific industry or company to escape the folly of ther cumulative boneheaded decisions.
Only those who believe christ rose from the dead, in Santa Claus, and the Easter Bunny, and other such miracles would believe that Lord Blankfein and his satanic issue made many tens of billions of dollars in one quarter simply by guessing right.
Front run? More likely they made the market. Machiavelli
as applied to finance.
END THE FED.
(c'mon Tyler, just do it)
Oh to be able to front run a Category 5 buying hurricane.
I noticed that you were expecting Ms. Schapiro to investigate this. Wouldn't that be counterproductive for the current administration?
Tyler: The fact that it was former SEC chief Donaldson with the President is a tell...why was Shapiro not there? Oh we know, is she ever there??? Bad blood between Donaldson and Shapiro...
A good start would be for Obama to remove Shapiro.
Taxing Wall Street Down to Size
David Stockman, a director of the Office of Management and Budget under President Ronald Reagan
Make no mistake. The banking system has become an agent of destruction
for the gross domestic product and of impoverishment for the middle
class. To be sure, it was lured into these unsavory missions by a
truly insane monetary policy under which, most recently, the Federal
Reserve purchased $1.5 trillion of longer-dated Treasury bonds and
housing agency securities in less than a year. It was an unprecedented
exercise in market-rigging with printing-press money, and it gave a
sharp boost to the price of bonds and other securities held by banks,
permitting them to book huge revenues from trading and bookkeeping
gains.
Meanwhile, by fixing short-term interest rates at near zero, the Fed
planted its heavy boot squarely in the face of depositors, as it
shrank the banks’ cost of production — their interest expense on
depositor funds — to the vanishing point.
The resulting ultrasteep yield curve for banks is heralded, by a
certain breed of Wall Street tout, as a financial miracle cure. Soon,
it is claimed, a prodigious upwelling of profitability will repair
bank balance sheets and bury toxic waste from the last bubble’s
collapse. But will it?
The baleful reality is that the big banks, the freakish offspring of
the Fed’s easy money, are dangerous institutions, deeply embedded in a
bull market culture of entitlement and greed. This is why the Obama
tax is welcome: its underlying policy message is that big banking must
get smaller because it does too little that is useful, productive or
efficient.
http://tinyurl.com/yezfxb3
Back in the early 17th century Sir Walter Raleigh explained in an epigram the politics of insider trading encouraged by the New York Fed:
Treason doth never prosper; what's the reason?
If it prospers none dare call it treason.