The Ongoing Plight of the U.S. "Nightcrawler" - Part 2

RobotTrader's picture

Currency markets to Fed/Uncle Sugar: Put up, or shut up.
Rasputin - Sat, Oct 10, 2009 - 08:29 AM

Clearly the relentless, empty, jawboning and pie-holing by various Fed
Heads and Treasury officials has convinced NO ONE (who matters, anyway)
that the U.S. is serious about reining in our monetary madness.

For pictorial proof of how insane that the Fed alone has been
acting, I ask that you simply click on this link to an

...and scroll down to the graphs of the various Fed programs to fling-fiatscos at the collapsed financial sector.

One glance at the monumental amount of risk shown in those charts
that the Fed is absorbing would send even the most fervent U.S.
nightcrawler lover into a fit of rage at the sheer stupidity that the
Fed has shown in accepting any and all toxic trash in exchange for
freshly-flung fiat.

Furthermore, as also discussed in that lengthy-but-informative
post is the fact that the Fed has NO INTENTION WHATSOEVER of unwinding
this enormous monetization--at least not with the failed financial
gamblers from whom the Fed accepted the toxic trash.

Instead, the Fed is seeking ways to soak down the money market
suckers and steal their hard-earned fiatscos via "reverse repos",
facilitated by the very failed gamblers that the Fed bailed out in the
first place.

In addition, please allow me to address another issue that
ABSOLUTELY PRECLUDES any dousing of the fiatsco firestorm the Fed and
Uncle Sugar have unleashed:


As I have discussed many times on this and other boards, the U.S. is very dependent on creating approximately:

over-and-above-the-TEN-TRILLION-already-in-existence, mortgages each
year, every year, year-after-year, just to keep the McHousing bubble
from continuing to collapse in on itself.

Which is ONE-HALF of the approximately:


...of total debt that must be created every year, year-after-year,
and in fact GROW more every year, just to keep the entire U.S. "Ponzi
Pyramid of Debt and Derivatives Death" from imploding.

Also, as I have covered ad nauseum, at this point the Fed and
Uncle Sugar are the SOLE SOURCE and BACKSTOP OF LAST RESORT for the
entire mortgage sector--both existing and new loans.


1. Fannie

2. Freddie

3. FHLBs

4. FHA/Ginnie

5. Fed purchases of MBS/GSE debt

...Uncle and the Fed are truly "all in" on the housing bubble and
they will do everything in their power to keep pumping this pig
up--even going so far as to implement some of the more Draconian
measures I have previously discussed such as:

1. Zero down payment (already doing that via 8000-fiatsco credit, soon to be expanded and extended)

2. Low interest rates (already doing that too, but can cut them in half if necessary)

3. Forty, fifty, or one-hundred loan terms (see Japan as example)

4. High debt-to-income ratios (already doing that too, but can crank it even higher).

...because there is NO WAY that Uncle and the Fed ever want to
admit that they are taking a beating in their ownership of the mortgage
creation/backstop/McMansion value space.

Finally, there is the issue of the:


...of dead, rotting debt STILL sitting on the books of failed banks and Wall Street goons, as well as:

TENS OF TRILLIONS OF FIATSCOS MORE destroyed derivatives positions dragging down the gamblers
who partook in this particular gambling parlor. Uncle Sugar, FASB, and
the ISDA have all colluded to allow the decimated players totally
ignore these festering wounds--with one little issue as a consequence:

The banks won't lend to any sheeple as long as the institutions remain in this crippled condition!

(Ras conclusion): We're just as scroomed as we were a year
ago--skying stock markets and gold-hating trolls posting "Gold isn't
money" notwithstanding.

There is absolutey ZERO chance that the Fed raises their Fed Funds
Politburo rates, and a ONE HUNDRED PERCENT CERTAINTY that both the Fed
and Uncle Sugar MUST continue their monetizations, back stops and being
the "lenders, insurers, and market of last resort" for all things
credit, but especially the McHousing market where they have
multi-trillion fiatsco exposure.

So, it is little wonder that the U.S. fiatsco is getting pounded
in the currency casino and that people are piling into PMs in
droves--even going so far as to DEMAND physical delivery from the
corrupt exchanges, even as the jawboning and pie-holing by the Fed
Heads and Treasury twerps continues unabated.

Because we are still very much in the midst of the "convulsions"
of collapse AND the massive monetary and fiscal insanity the Fed and
Uncle are undertaking to fight them.

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AN0NYM0US's picture

+1 related reading...

from a "Nobel" Laureate
Beware the dollar hawks

from James Quinn

from Simon Johnson (posted at ZH earlier this week)
Another "Nobel" Laureate's Secret Jobs Plan

and totally unrelated but interesting none the less (a redux of the NY Mag hit piece on ZH)
Zero Hedge: The Daily Kos of Financial Blogs

Gordon_Gekko's picture

Paul Krugman's was another Nobel down the shitter. He is a moron and I am pretty confident if we do the exact opposite of whatever he suggests, we'll be fine.

cocoablini's picture

+1. Krugman is just a editorial writer. Did he predict a deflationary meltdown? NO. Economists are pretty adept at analyzing the past or current but cannot extrapolate either into future predictions. He's a Keynesain drone of immense failure

glenlloyd's picture

besides being a moron he must be multiple personality, cuz he can say two entirely contradictory things in the very same day.

AN0NYM0US's picture

Seems that Zero Hedge is in good company as the New Republic also does a hit piece on none other than Alex Jones
Truther Consequences

Sancho Ponzi's picture

I totally concur with RobotTrader. If residential real estate sales begin to slow, look for a new round of $12k - $15k tax incentives. If that doesn't work, watch our friends inside the beltway backstop 2.5 - 3% 30 year loans. Ultimately no amount of District of Columbia contrived crap can offset the monumental glut of 2500-3000 sf homes that have been constructed since 9/11. The residential real estate market, warped by dubious underwriting and the Fed's 'Homes for everyone' policies cannot be undone with balance sheet trickery. Modest homes will continue to sell, and 300k+ homes will continue to devalue.

And coming soon to a theater near you: The CRE sunami



Gordon_Gekko's picture

I think that last nightcrawler picture also accurately describes the present state of the entire US financial system and US government, with Benny, Timmy, Obama, Larry, Blankfein et. al. crawling somewhere in there.

mberry8870's picture

I am more inclined to think cockroaches than worms, personally. But that is just me.

Anonymous's picture

It only gets better, HR1479 was voted out of committee I believe the other day, this is the son of CRA only good news it appears to include the non-bank banks like GS.

kilroy's picture

Larry Kudlow was on WABC radio locally in NYC today blaming the weak dollar on Rahm Emanuel. Sure, Lar - it's all Rahm's fault. uh, huh. Looks like the GOP doesn't want to waste a crisis either. They'll stoke the tea baggers all the way down to the Empire's demise. By the time they get their coveted power back they'll be in charge of ruin.

BM's picture
BM (not verified) Oct 10, 2009 11:24 AM

you forgot to include pics of girls, Ukrainian call-girls

Anonymous's picture

separated at birth?

Jabba the Hut / Larry Summers

Anonymous's picture

Instead, the Fed is seeking ways to soak down the money market suckers and steal their hard-earned fiatscos via "reverse repos", facilitated by the very failed gamblers that the Fed bailed out in the first place.

SLOW DOWN PLEASE. You're typing too fast for my brain to comprehend. For all of us new folks to ZH, please explain what a "reverse repo" is and how this affects our money market accounts. How will they do this to us.

Dumb it down just a little bit please.

Gotta go to a cook-off and beer drinking contest, so if anyone wants to throw bricks at me for being stupid, I won't be able to repsond for awhile.

Anonymous's picture

Later on, when the fit has hit the shan, there may be a "teachable moment" when folks seriously search for answers. Zerohedge's writers will have some credibility at that moment, due to their prescient warnings. However, that credibility will become irrelevant if those same writers cannot point to comprehensive alternatives that might have led to better outcomes. I would like to see more such discussion - what could and should we (as a nation and economy) be doing instead?

Anonymous's picture

Not giving Hank Paulson tyrannical authority to dispense a trillion dollars, NO QUESTIONS ASKED OR TOLERATED, would have been a great first step.

Then firing his ass for sucking Lord Blankfein's dick.

For openers.

Dr Horace Manure's picture

This site hurts my brain.

For the tenth time, I hereby request a "ZH FOR DUMMIES" section.

First, remind me again what "PMs" are.

Secondly, please explain how this paragraph;

"Instead, the Fed is seeking ways to soak down the money market suckers and steal their hard-earned fiatscos via "reverse repos", facilitated by the very failed gamblers that the Fed bailed out in the first place."

will affect money market suckers like me.

I'm going to a cook-off and beer drinking contest, so those wishing to throw bricks at me for being stupid will have to wait awhile for my response. 




Anonymous's picture

Nobody is going to make you smart except you yourself, so why don't you start Googling what you don't know or understand.

Dr Horace Manure's picture

Is there an echo in here, or has some Anon stolen my identity? =)

Anonymous's picture


ZH isn't intended for general consumption. What we get here is relatively high information density, and everything from high order critiques of theory to granular technical analysis---mostly a survey of whatever is most interesting or germaine to current economic events.

When you encounter jargon, understand that it is shorthand and a quick way for people who already have a functional understanding of concepts to communicate with each other quickly, efficiently, and often times with embedded meanings.

Lost on a reference, concept, phrase?! Great. Don't worry. Take it as a signal that you may need to do some heavy lifting and get yourself educated. ZH can't and shouldn't be all things to all people. ZH matters because it gets straight to the point. Anything less, and it would be just another watered down rag.

Anonymous's picture

...punctuated by RoBoTraders' graphic arts hot/babe/filly relief, of course.

tahoebumsmith's picture

For all of you illiterates, he did include a visual! Just look at the Hand o worms and let your imagination run wild.

MBP_67's picture

+1 for Robottraders analysis.  This is my first post and I am enjoying the spirit in the posts.  I for one hate worms..:-)

charles platt's picture

There is really no need for handholding where jargon is concerned. Go to Google and type search term

finance pm

And you get a graph as the first hit and a dictionary definition as the fourth.

ChickenTeriyakiBoy's picture

@ Gekko: if Krugman had received his "Nobel" for his wrong-headed policy prescriptions as published in the Times and elsewhere, I would agree. But his contributions to theory are undeniable. Then again, it is a fake Nobel.

Gordon_Gekko's picture

Considering his moronic writings and the fact that he doesn't know a SINGLE (not exaggerating) thing about economics, I have a hard time believing his "theory" - whatever it is - is any good.

Dr Horace Manure's picture

Wow, no bricks thrown my direction.

Thanks CB for the PM translation.  Btw my other moniker is "Arrogant Bastard." 

And yes, I should have Googled "finance pm" to figure it out.

"High information density" is an insult to ZH.  ZH is "Off the charts information density."

Still none of the brainiacs here have explained how my money will be stolen from my money market accounts (which are substantial), I know, a fool and his money yada yada.

I'll go sit in the corner and be quite now.  Do I get a dunce hat to wear?

Bam_Man's picture

Your Money Market accounts are yielding something on the order of 0.06%.

Now imagine inflation running at 15%-25%, the Fed Funds rate still at 0-0.25%, and Bernanke repeating "We believe inflationary pressures will moderate shortly" for the ten thousandth time.

All your money is still sitting there earning 0.06%, and you have been robbed blind.

Anonymous's picture

I don't understand the reverse repo and market markets losing either. Rest assured that if the fed allows 1 more money market to break the buck, then that will be it for the money market industry. This would cause a huge problem for bernake and he knows it. So losing money in a money market seems off the table, and thus I fail to understand how a reverse repo is going to be allow to do anything.

I am the mole's picture

I watch Bear Grylls and Man vs Wild, so I can deal with eating worms...I am the mole afterall.  Just have to butter them and deep fry and be on the right side of this economic policy fiatsco...thanks to ZH.

zeta's picture

Thanks RoboT. I think this is among your best posts in recent weeks.

You certainly do possess a superior word sense. Makes me want to read books written by you.

Dr Horace Manure's picture

Please notice the paragraph below does not mention money market mutual funds.

"First, the Federal Reserve could drain bank reserves and reduce the excess liquidity at other institutions by arranging large-scale reverse repurchase agreements (reverse repos) with financial market participants, including banks, the GSEs, and other institutions. Reverse repos, which are a traditional and well-understood tool of monetary policy implementation, involve the sale by the Federal Reserve of securities from its portfolio with an agreement to buy the securities back at a slightly higher price at a later date. Reverse repos drain reserves as purchasers transfer cash from banks to the Fed. Second, using the authority the Congress gave us to pay interest on banks' balances at the Federal Reserve, we can offer term deposits to banks, roughly analogous to the certificates of deposit that banks offer to their customers. Bank funds held in term deposits at the Federal Reserve would not be available to be supplied to the federal funds market. Third, the Federal Reserve could reduce reserves by selling a portion of its holdings of long-term securities in the open market. Each of these policy options would help to raise short-term interest rates and limit the growth of broad measures of money and credit, thereby tightening monetary policy."

The above paragraph is the third to last paragraph in the article link below.

So if the Fed does a reverse repo with my money market fund, it will take my good money and will replace it with the GSE (agency debt) and MBSs it can't unload from it's own balance sheet because they are actually (surprise) worthless, or at least worth-less.

So this is how the Fed will get rid of the toxic garbage it is now holding, by putting it into my money market fund and pretending it will buy it back from me later at a higer price?

I'm working hard here people, so help me out with this.  Especially Project Mayhem, RobotTrader, Cheeky Bastard, deadhead, Chumbawhatnot, Spanky and the rest of the gang.

The Fed can:

1.  Sell the worms to the banks.

2.  Sell the worms in the open market.

3.  Sell the worms to my money market.

If the banks and open market are smart enough not to buy this junk, why would the PDs (primary dealers - for those new to the asylum) be willing to trade my MM dollars for this stuff.

Uh-oh.  It looks like I become the patsy in this poker game.

But don't the PDs have a fiduciary responsibility to protect my interests in this transaction?

Maybe not.  In a real financial crisis it's every man for himself.

If the above is true, the last place I want any of my money is in a MM account.  I could take it out and go buy my own worm farm.

Some of you may have noticed I don't have a clue what I'm talking about here, but at least I'm reading and trying to understand.

To paraphrase Mark Twain:

The person who does not read newspapers is uninformed.  The person who does read newspapers is misinformed.

Have I misinformed myself by reading?  If so, please explain it to me.


ZH for Dummies

GSE - Government Sponsored Entity

MBS - Mortgage Backed Security

MM - Money Market

PD - Primary Dealer

FEDERAL RESERVE - See picture of worms above

Rusty Shorts's picture

"You can learn a lot by picking a cat up by its tail"


 - Mark Twain.

Shylock81611's picture

My greatest fear: war.


Except this time it wont be with some weak, unarmed country like Viet Nam.


I wonder how it will be having the Chinese partying in Beverly Hills???

Anonymous's picture

No chance of that.

TheBamster 'won' the Nobel Peace Prize.

War has been overcome.

brodix's picture

Read the Market Ticker,, for a slightly less technical view.

cocoablini's picture

Reverse Repos. From the government that brought you the GOLD CONFISCATION act, we proudly present the savings confiscation act. Since FDIC, FED and all banks are broke, the USG via FED and a bent over SEC can use your money market cash(4 trillion) and exchange it for toxics currently being held by the FED. Since the SIPC is not USG-backed, the brokerages are not Federally insured but privately insured. It just takes one broker to wipe out to nuke the SIPC system. SIPC says you are insured for 200k and all your stock-but let's face it. If a 9.0 earthquake hit LA, would there be an insurer left to pay the claims. And if your brokers, who are now being threatened by the FED to exchange MM cash for toxic and illiquid collateral, go bust does anyone here think you be able to get your cash out to purchase,gold or other stocks. The FED is going to hold your savings hostage-there is NO way out of this mess.

I've been saving cash to jump on some good bargains during a steep correction. But I bet I on't be able to access my cash

smokeybear's picture

The Fed is on a suicide mission to nowhere.

While trying to keep Wall Street well-funded they are maintaining bubbles in not only stocks, but also commodities and energy. So, as the economy tries to deflate, prices refuse to follow thereby exacerbating the downfall.

The longer they persist in this reckless maneuver, the more the Alan Graysons, Ron Pauls, Matt Taibis and Zero Hedges will come out of the woodwork rallying the struggling citizens around them. Paul's End the Fed is number five on the NY Times' best-seller list.

Taxpayer revolt, debtor resistance and outright outrage will eventually cripple the authorities' efforts to pretend system solvency. If there is a congressional election in 2010, new faces will abound in the Capitol.

The authorities are providing everything but the rope with which to hang themselves. The rope will be purchased with monies withheld from tax and debt payments.

"The mayor is the problem! The flagpole is the answer!
We hung the first one! We can hang another one!
The mayor is the problem! The flagpole is the answer!
We hung the first one! We can hang another one!"

(from the Firesign Theater's Boom Dot Bust)


glenlloyd's picture

The problem is that the congressional status quo will not go without a fight. The Executive branch now has too much power and presidental directives have now made it virtually impossible to win this without an all-out altercation by the populace.

I don't see the changes needed coming about peacefully.

We have for too long looked away or been distracted while those in power enacted rules and regulations that put the individual at a disadvantage against the state.

RobotTrader's picture

Reverse Repos:

Definition by Rasputin:

"Here is the explanation:

The Fed would stick the money market funds with some of the horrid,
toxic, trash "assets" that the Fed accepted from the failed Wall Street
gamblers. In return, the money market funds would hand the Fed YOUR
U.S. nightcrawlers.

Then, later (and who knows when?), the Fed promises to "reverse"
the transaction with the money market funds, and the Fed would hand
back to the funds the U.S. nightcrawlers and the funds would hand back
to the Fed the horrid, toxic trash "assets" to the Fed.

Those "assets" consist of all kinds of worthless, junk paper claims
such as "Cabela's Credit Card Master Trust", as well as various MBS,
CDOs, CDO-Squared, CDO-Cubeds and who-knows-what-else goo with which
the Fed is currently saddled.

Now, here are a few questions to ask yourselves regarding this proposed "reverse repo":

1. If the "assets" are so "valuable", then why doesn't the Fed just hold them to maturity?

2. Or better still, hand these "assets" BACK to the failed Wall
Street gamblers from whom the Fed accepted them, and get the Fed's
fiatscos back?

3. When, exactly, does the Fed expect to unwind these "reverse repos" with the money market funds?

4. Once the Fed DOES (if ever) unwind these "reverse repos" with
the money market funds, where does the Fed expect to find more fiatscos
to replace the one's it will have handed back to the money market
funds. Which begs the final question:

5. Why is the Fed even considering this little maneuver with the money market funds in the first place?

Dr Horace Manure's picture

Answer to question #5 - Because that's where the money is.  Remember Willie Sutton.  The money markets may be the only place with enough dollars to accomplish the reverse repo.

Kick the can one more time and hope they can repurchase later when the "hope and change" road show is over.

I'm getting out of money markets immediately. 

brown_hornet's picture

Thanks Robo for the info sufficiently dumbed down for us merely educated masses. (not geniuses).  Elitism will do no one any good. 

I can't figure out the answer to ques #5, but isn't the simple answer to #4 "run the printing presses 24/7 and possibly bring back the 1000 and 10,000 fiatsco notes.

crzyhun's picture

RT- I like the density and elegance of your argument. There is a bit of a manuver problem with the reverse repo. It can happen, just how is a bit sloppy...not impossible though.

Next, a Treasury Bill fund or  Bill etf should do the trick I think, gold, and some oil for substance and sauce, respectively. I suspect this will avoid the Rasputin prognostication some.

gookempucky's picture

1. If the "assets" are so "valuable", then why doesn't the Fed just hold them to maturity.

It looks to me RT that by design --nothing-- will reach maturity--cash for clunkers-sell the future for the now--as for crzyhun mentioning oil-would not put it past our comrades in crime to use the SPR (that was purchased by taxpayer monies)as a fund for their failures-currently holding some 700 mill bls X 70 pb clips the 4 trillion needed--who knows it might be empty by now..