An Overview Of The Fed's Intervention In Equity Markets Via The Primary Dealer Credit Facility

Tyler Durden's picture

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
rhinotrader's picture

I wish I could pledge my expired put options. That would be sweet.

Anonymous's picture

you probably can and even earn interest on them....

Anonymous's picture

Proof positive that there is no more duplicitous, dangerous counterparty that the Federal Reserve and its minions in Treasury and Primary Dealership.

As has been suspicioned throughout this false rally (as all fundamentals fell apart), it is only a prop job. This is not mom-n-pop investors making independent decisions to allocate securities to a portfolio in order to participate in America's wealth creation, but rather the desperate attempt by a failing government to KEEP UP APPEARANCES.

Morally bankrupt, and now financially bankrupt in everything but the numbers.

If ever one should hold IOUs of every form with suspicion it is now. They are all tainted, and none are free from the rampant manipulation of money masters.

They have destroyed the confidence of the people in their notes of conveyance, and in the institutions which should uphold systemic integrity.

It is gold now, and only gold. It is the only thing mostly removed from their predations.

If every man and woman were to read and comprehend this article, and understand its discovery of proof on PONZI USA, all the markets and the currency would collapse overnight.

Its prima fascia facts demand nothing else. Your promissory notes are only what the government condescends to allow them to be. They have no independent discoverable value of their own. It is all arbitrary. Your wealth, savings, estate depend upon the vagary of a capricious government for their day-to-day worth.

DUMP THEM ALL. GO TO GOLD. It only is defensible in a world wrapped in tentacles of intrigue.

john bougerel's picture

To Ben Bernanke,

You could hardly be more disingenous calling primary dealers "prudently managed institutions" or "conservatively managed firms."


Ben, you are flat out becoming a liar.


Anonymous's picture

Oh don't be so hard on old Bernanke. In fact if i were american, i'd be at least partially grateful to him. Personally i think he's trying to pull off a difficult hat-trick; ie, killing 3 birds with 1 stone:

Reduction of debt, a nasty one especially for China and japan. President Obama's bowing down to the jap emperor was probly his artful way of apologising. They deserve it, i think, that's a US$225 bil bow.

Providing liquidity to avert bank failures, that they succeeded, altho at a hefty price. Might be 2 yrs - or 10 - before the real estate markets recover enough for those sick institutions to relieve themselves of their overpriced assets. And until then, the FED has more or less committed itself to keeping them on life support. For a trader, that's the equivalent of holding a losing position on borrowed margin. Ouch!

Promoting public confidence, which i personally believe is the gist of it. The stock market rally, which improves public sentiments, could serve as catalyst for the economy at large. Whether this was an unintended consequence, or the FED's goal all along (like the article above suggests), is anyone's guess.

Last but not least, i wouldn't say the stock markets are in danger of crashing anytime soon. There's no need for mass liquidations when the cost of borrowing is negligible. And lest we forget, the yen carry trade lasted ~10 yrs. Yes the good times won't last indefinitely, but 10 yrs is a long time to twiddle one's thumbs.

And meanwhile, who is to say the hardy americans won't finally get their houses (pun unintended) in order and start producing wealth again?

Jsun, SG

Spartacus's picture

I cann't believe that BERNANKE, just one man can take the whole of US of A for a ride to feed the Bank PIGS and, tell you what, all of you are just watching. Just watching, mate. Well, no wonder ,the public ,in general ,are morons.

Thank you Tyler. Great Piece of work. I always wondered without a huge guaranteee who is buying these craps.

NOW, is it possible that the general public KNOWS about the "BERNANKE PUT"? The retail investors  are already buying it seems.

pooplagrande's picture

Is this why Obama came out and advised the general public that "this was a good time to buy stocks!" in the spring time? Was this essentially the biggest insider trading scandal of all time? Man...wish I was more in the know there...should've listened to Obama when he tried to tell me that the game was fixed.

We live in an illusionary world with a little Wizard of Oz sitting behind a curtain at the Fed manipulating the markets.

This is #*&#&ing bull#&$&...

john bougerel's picture

I remember that remark for how illegal it was for the President to recommend buyint stocks. He is not licensed to authorize or dispense finacial advise. And he didn't even put in the required disclaimer for doing so. He could be litigated on those grounds you know.


Just a thought if any lawyers want to take him to task.

AN0NYM0US's picture

PCDF was  modified Sept 14 2008 (Lehman) here are average daily figures for the PCDF during that period (note for the two months prior to that period the number was zero)

July-Sept 2008                  $0

w/e Sept 17, 2008             $20b

w/e Sept 24                      $88b

w/e Oct 1                         $147b

w/e Oct 8                         $134b

w/e Oct 29                        $87b

w/e Nov 5                         $77b

and from there it tailed off to less than $20b by March 2009 down to $12b in April 2009

w/e May 17 2009 to present $0

I haven't done a calc of the average daily figures for the one year period from September 2008 - 2009 but I suspect it would be in <$20b range and of course since the spring it has been zero.Moreover the Fed does not appear to be carrying any assets, worthless or otherwise in relation to the PCDF program; not to say that they aren't somewhere else on/off balance sheet.

In terms of the PCDF, except for the five or six month blip up to the (interim) March market bottom, dare I suggest the program seems to have done its job -- any takers?



Anonymous's picture

Its essentially a shell game. But a shell came that allowed the sun to rise every morning. Its been my view that route taken has been in all of our own best interests. Even as my performance has suffered of the past months as I was stuck in Bear mode.

Kudos to Bernanke and Tim.

Yea so the banks made off like bandits whats new.

Anonymous's picture

I must really be stupid. We are getting our panties in a wad over the fact that the FED is using the primary dealers to purchase stocks. It looks like the only purchases were made during the crash months from October to March 08. That trade would be a loser, no?

Someone please help me, what am I missing here?


Anonymous's picture

pay your clue phone bill...

Anonymous's picture


Thanks for the intelligent answer. I ask a valid question and you come up with "pay your clue phone bill". What is that supposed to mean? I only have a Masters in Business Economics and have been investing for 40 years. Unfortunately I am not one of the perfumed princes of Wall Street, so I don't get it. Is that too hard to understand?


Fish Gone Bad's picture

I came across this graph a while ago: .  It does not look like the purchases are anywhere close to stopping.  I emailed the Fed months ago, and got a "These are high grade securities" answer.  Now we know they are not (as I suspected).  Now add that picture to the apparent capital flight: and that should give you a nightmare.

Hope this helps.

jbeyer's picture

Turbo, you have to understand the TD fanboy mentality here.  One does not question the all-mighty Tyler Durden!  Everytime I ask a reasonable question like you do, I get a complete BS response, often from Tyler himself.

The other huge fault in Tyler's logic is that he is suggesting that these equities purchases are being backstopped by the Fed.  They aren't.  If collateral loses value overnight, the borrower loses the money, not the lender.  So they are giving a loan for next to nothing, but there is huge risk in levering up with equities.

CD's picture


Yes, most readers generally agree with TD on most points - it's a self-selecting bias of readership observed in all media, not just ZH. Regarding the backstop -- the backstop is the provision of nearly unlimited liquidity itself. The provision of the "cash" (and presumably tacit or concrete understanding between the players mentioned that this will continue) is the "guarantee" as those with access to the capital are racing each other to produce the maximum results possible. Not an actual guarantee, but a self-reinforcing feedback loop. Wasn't the point that shares of companies were previously not considered secure enough to qualify as collateral for preferential Fed loans, but became so as a response to the liquidity crisis? As to risk - well, what happened when these banks last over-leveraged with hugely risky investments and stood liable to lose unthinkable sums of shareholder money?


jbeyer's picture

CD, I agree that the backstop is a liquidity backstop. But the way I read parts of the piece, TD implies to those who don't understand the true mechanics that the backstop was a backstop against losses. And there is an enermous difference between the two.

Another bone of contention: TD says, "In essence, this was equivalent to the Fed purchasing equities by itself through a Primary Dealer agent." How is that the case? The Fed provides liquidity and should the PDs purchase equities, they do so. But the fact that the Fed provides liquidity will not induce the PDs to purchase equities.

But TD never lets reason stand in the way of a good conspiracy theory...

jbeyer's picture

TD also conflates the idea of the Fed loosening collateral requires to the pluge protection team.  Loosening collateral requirements for repos is a world away from direct equity market purchases.


Boo to Tyler duping his fanboys...


Give them the truth Tyler

buzzsaw99's picture

Whatever, the fed is illegitimate. Let them play their games, I'm out.

Gubbmint Cheese's picture

this is a green shoot right? Markets up700 tomorrow?

PD Quig's picture

You mean, there are still people who have money "invested" in equities? Everyone I know is either (very) short-term trading, in gold, in cash or some mix of the three.

FischerBlack's picture

Just plain awesome work. Great piece.

agrotera's picture

OK, this is GREAT, (thank you Tyler!), I hope that all good US citizens reading this article will print it, and send a letter to each of your senators telling them that this criminality can go on no longer.  Either they support S604 or they we will find younger and better candidates who are not afraid to go against the privately held monopoly Fed and all their agents who have successfully bought all candidates, and thereby enabled legislating their criminality--their gig is over.

jortex's picture

You must be forgetting that our senators don't read.

agrotera's picture

Really! It is a terrible waste of time...any who aren't totally supporting S604 are OBVIOUSLY agents of the Fed cartel--that is why their whole mantra to "keep the fed independent" is such a terrible lie!  it is their positions and a symbiotic relationship that are completely dependent on the support of the Fed cartel in exchange for legislation to legalize the criminality that is sucking the life out of all Americans except the owners and members of the cartel.

geopol's picture

Senators,,did you say senators?


The criminality you speak of is hived in the senate..... /Representatives.....


535 Commiditized temple monkeys scouring the ruins of America looking for bribes,, the whorehouse on on the hill where you can slide in a quarter and out comes the desired legislation.  When will we wake up?????

My high school civics teacher is a charlatan..


ToNYC's picture

When the policy ends of turning out economic illiterates from ELEMENTARY School, perhaps we will have a prayer. The question, "What do you do when someone offers you something too good to be true?" is not asked and graded as a requirement to graduate to High School and or GED.

Anonymous's picture

Thanks for a well written article. Either my vocabulary is improving or this article relied less on jargon than earlier one.

I really appreciate the efforts of those who post and comment on ZH.

deadhead's picture

This one is a masterpiece ZH.

Thank you for putting this together. 


OrganicGeorge's picture

does anyone have an update on this story from last year?

"WASHINGTON — The federal agency charged with backstopping pension benefits for 44 million Americans lost almost $5 billion from investments in stocks in the budget year that ended Sept. 30, the agency head acknowledged Friday.

The Pension Benefit Guarantee Corp. will lose 6 percent to 7 percent on its entire investment portfolio, PBGC Director Charles Millard told the House Education and Labor Committee. It lost a significantly higher percentage of its investments in equities."

How far until the PBGC breaks even?


Read more at:

Rollerball's picture

Why do you think they nationalized GM and Chrysler?

deadhead's picture

For those that have never read the Executive Order creating the Working Group, here it is in its entirety:

Executive Order 12631--Working Group on Financial Markets

Source: The provisions of Executive Order 12631 of Mar. 18, 1988, appear at 53 FR 9421, 3 CFR, 1988 Comp., p. 559, unless otherwise noted.

By virtue of the authority vested in me as President by the Constitution and laws of the United States of America, and in order to establish a Working Group on Financial Markets, it is hereby ordered as follows:

Section 1. Establishment. (a) There is hereby established a Working Group on Financial Markets (Working Group). The Working Group shall be composed of:
(1) the Secretary of the Treasury, or his designee;
(2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee;
(3) the Chairman of the Securities and Exchange Commission, or his designee; and
(4) the Chairman of the Commodity Futures Trading Commission, or her designee.
(b) The Secretary of the Treasury, or his designee, shall be the Chairman of the Working Group.
Sec. 2. Purposes and Functions. (a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider:
(1) the major issues raised by the numerous studies on the events in the financial markets surrounding October 19, 1987, and any of those recommendations that have the potential to achieve the goals noted above; and
(2) the actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.
(b) The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.
(c) The Working Group shall report to the President initially within 60 days (and periodically thereafter) on its progress and, if appropriate, its views on any recommended legislative changes.

Sec. 3. Administration. (a) The heads of Executive departments, agencies, and independent instrumentalities shall, to the extent permitted by law, provide the Working Group such information as it may require for the purpose of carrying out this Order.
(b) Members of the Working Group shall serve without additional compensation for their work on the Working Group.
(c) To the extent permitted by law and subject to the availability of funds therefore, the Department of the Treasury shall provide the Working Group with such administrative and support services as may be necessary for the performance of its functions.

Top of Page

Anonymous's picture

Outstanding ZH. How anyone can have faith in this market is beyond me. This market run up is letting all the idiots get back in before they pull the rug out. Game over.

Anonymous's picture

Its essentially a shell game. But a shell came that allowed the sun to rise every morning. Its been my view that route taken has been in all of our own best interests. Even as my performance has suffered of the past months as I was stuck in Bear mode.

Kudos to Bernanke and Tim.

Yea so the banks made off like bandits whats new.

deadhead's picture

capmark filed today.

Anonymous's picture

Anonymous's picture

ZH keeps knocking it out of the park.

Anonymous's picture

I hope this gets a wider release beyond ZH. Excellent work Tyler.

vicelord's picture

I remember the joke being, all through January and February, that there were only two trades being made - shorting and covering your short.  What I want to know is, can you come up with any evidence to prove that, with the Government's full backing, the big boys (GS, JPM, STT, BLK et al) were allowed to collude and short the market to the brink of oblivion?  I'm sorry, but looking back on it now, it all seemed a little too orchestrated for my tastes.  


And, if you COULD provide some evidence, would that be illegal?  Would it have been lawful for these banks to have said to Bernanke and Geithner that, "We have to short the market down to 666 on the S&P in order to bring it back up, and we're gonna use taxpayer money to do it"?  


And then use taxpayer money to burn every short position out there up to a specific date?  (In this case it would've been May 8th - 2 months almost to the day.)  Maybe my tinfoil hat is on a little too tight, but I swear it all came off a little too perfect.  

deadhead's picture

there are those that say it started when cox okayed blowing out the uptick rule.

also, denninger has written that the slosh was yanked hard last fall.

Anonymous's picture

Gents, DH,

Can somebody explain the sloshing to me ?

I understood decreasing slosh to be decreasing lquidity and therefore decreasing doesn't seem to add up though when I run the 2009 report in the link below...450bn to 150bn, from march to october.

Reports can be found here :

Tnx, Bas.

agrotera's picture

AIG's counterparty list came out in February or March, but to really get a picture, it would be necessary to know every party that held CDS's on Lehman--if Paulson/Bernake's decision not to give Lehman a 6 billion bridge loan could ever be layered over the CDS's looming on the death of Lehman, it would be clear that this refusal to help Lehman was based on a wish to rid the market of GS's biggest competitor, while giving all those betting on the Lehman death a win--they damn well knew that that was the biggest bet out there and that AIG was the biggest writer of the CDS's--and the immediate free cash that went to AIG is more evidence of this coup d'etat....although i didn't vote for Obama, i was hoping i was wrong and that he would come in and ask for an investigation of paulson and bernake's decisions--instead the whole administration nominates the two for men of the year--this is like al capone days or like we live in "gotham city" as a nation, and batman hasn't yet taken any of the criminals down--and who will batman be, tyler mayber? I think batman will be all the good watchdogs out there coming together and asking the public to join in doing something to put in jail and take out of power, our corrupt legislators that legalize the criminality of the privately held federal reserve cartel.

Anonymous's picture

I think we just have to put in non-financial jargon for people to understand how egregious this behavior is.

So here's my example.

Let's say a local business man owns a concrete plant, and he has two other competitors in town...they are pretty much it because nobody else outside the metro area can practically ship wet concrete into his market. Building a whole new plant that will take years to compete, and is risky, high buck play, so big barriers of entry.

So greedy concrete man decides to go for broke in 2007, and targets his weakest compitetor. He knows they are pretty leveraged up having just upgraded their plant with state of the art equipment while the construction business is clearly on the decline and it appears to be worsening. The fact that his business is also way in debt does not bother him as he is friends with the Governor and he has a plan.

First he takes out a huge life insurance policy on the sole owner of his targeted competitor concrete plant (I know this is illegal in real world but can't make analogy to financial markets without being allowed to do this.)

The thing is, he knows that the life insurance he's buying isn't really worth much if this competitor really dies, because the premiums he is paying on term life insurance on a 75 yr old guy that smokes are about $2/month and he knows this insurance company is selling insurance way to cheap to others also and that they are simply pocketing the premiums as more or less pure profits setting aside almost no reserves.

In fact, its worse. This insurance company lets anyone take out life insurance on anyone, including complete strangers. and they let different people take out insurance on the same person multiple times! So they really, really do not have the reserves to cover the death of one prominent person, because there would be so many people to pay besides the widow. Why this insurance company is allowed to do this in violation to all normal insurance regulations has something to do with the past several Governors feeling that the free market will police this type of stuff. And why, in a free market would the greedy concrete guy pay premiums to an insurer that obviously does not have the reserves to pay out? This is where the friend, the Governor comes in. Greedy concrete guy knows the markets are not so "free" of corruption and he likely can get the Gov to get the State to bail out this insurance company when his competitor dies, by saying something about teacher pensions being insured by same people or some such scary thing.

And then greedy concrete guy starts spreading rumor that his competitor is using inferior cement in his concrete and that is likely the reason a local school collapsed. He drops a libelous anonymous tip to a hot-headed, drunk, guilt-ridden general contractor that was put out of business by the school failure. And the general contractor goes and shoots the owner of the competitor concrete company.

So competitor is gone, that'll be a really good thing down the road for greedy concrete guy, but there's a wrinke because for some strange reason people have lost faith in concrete business in the town altogether because they find out that all the concrete companies were using the same, inferior cement. No one want to build a thing any more, or least not to whole new plants are built and new cement testing and regulations are brought in. So his cash flow goes to shit, has tons of debt, and he can't even sell his assets, as no one buy such tainted "goods", the concrete plant, and certainly not when it looks like no one will be buying concrete in the near future, even if they can be confident in cement, no one is freaking building anyway as construction economy keeps worsening.

So greedy concrete guy is thinking pay back is a bitch and he has some shady, Mafia type muscle coming after him for his debts, so he goes to Gov for help, explains he needs the life insurance payout for his dead competitor. Gov says you have talk to State legislature but I'll help. The go to state legislator and decided to go after the Dems, as they care about teacher pensions. They say all teachers will starve and worse yet, the Hells Angels pensions were dependent on this insurer also, and we have secret reports from the police they are armed and ready to kill state politicians for not regulating insurance company properly, they want their money or they want heads. The Gov, (who has also had a few threatening visits from concrete guys loan sharks) is so scared for his life, he even gets down on his knees and begs the Dem leader to bailout the insurance company. This, and the scare tactics, work on the spineless, rubes, the Dems. They even get Gov and Dems to come out and say cement is safe, the problem was at the dead guys plant that contaminated the cement, and to prove it to the publci, they put other plants concrete thru some crush tests, and state D.O.T. lab says it survived, all is cool.

When the local police chief starts sniffing around the about the reason other concrete guy was murdered, the Gov appoints fires him because he failed to protect concret guys life and he gives Chief job to an ambitious young detective who knows he is to kill homicide investigation.

The greedy concrete guy rejoices, he gets the whole insurance pay out, he has way less competition and there is way less "capacity" because the competitor plant is destroyed, not sold to another competitor. Also, the concrete business is back. To top it off, the home builders and commercial builders push for the govt to get building going again and insist they give money to concrete guys to buy new cement, which is real cheap right now.

Seems liek FBI does a fairly good job of catching behavior like this in "real" world as every 10-15 years most states have some building material supplier arrested for price fixing, or bribes to state officials or some such and afew of these guys in the Fed clinker keeps things honest for another 15 or so years.

Why is Wall Street so different?

ToNYC's picture

Let Elliot Spitzer have his choice of mistresses and let him go back to work. I miss him coming to work in our building with the black car plates "NYC 4". A man's got to do what a man's got to do.


jippie's picture

Great article.

Anonymous's picture

Bernie Madoff attorney and accountant took a dive into the deep end of his pool...and did'nt come back up.
Did'nt he know chlorine is lethal to bacteria?

geopol's picture

Will this never cease?,, And all along I thought shit floated. My high school physics teacher is a charlatan..

CD's picture

A terminal attack of conscience, or that of a truly desperately pissed-off ponzee...?

FischerBlack's picture

LOL, anon. Well said.