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Primary Dealers Flip 50% Of Another Bond Issued Two Weeks Ago Back To Fed

Tyler Durden's picture




 

Yesterday we tried (and failed) to make a big deal of the fact that Primary Dealers flipped 53% of the 7 Year Bond just issued two weeks ago (apparently nobody in charge cares or understands what this means, except for Bill Gross of course), so today we will go for an encore, and courtesy of today's $6.69 billion POMO, point out that the Primary Dealers have now managed to flip 50% of the just issued 5 Year Bond CUSIP: 912828QJ2, which was issued on February 23, and which saw $20 billion allocated to Primary Dealers. Well, on the Pomo from March 2, the Fed monetized $4.9 billion, and today this was followed up with another $5.1 billion. The monetization farce is now moving to every single OTR bond, and nobody in congress dares to ask why or how much money the Primary Dealers are making as a result of this travesty. Which is why going forward we may or may not report on bond auctions that have a Primary Dealer component (so all): in essence with the Fed guaranteeing to buy back half of every Primary Dealer take down, it is no longer an auction. Luckily, there is a 35% SOMA limit on how many bonds the Fed can monetize per CUSIP. Oh wait, that was scrapped as part of QE2. It is now a true Vaseline free for all.

Here is today's POMO summary. Note the highlighted billions in electronic ones and zeroes.

 

 

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Wed, 03/09/2011 - 16:38 | 1033974 cosmictrainwreck
cosmictrainwreck's picture

scandalous behavior - call the police

Wed, 03/09/2011 - 16:57 | 1034040 brian0918
brian0918's picture

Can someone this finance noob WHY they would turn around and sell it back to the Fed? What do they get out of it? Aren't they buying the bonds with money, and then selling them back in exchange for money?

Wed, 03/09/2011 - 17:04 | 1034064 Dixie Normous
Dixie Normous's picture

Commissions.

Wed, 03/09/2011 - 17:09 | 1034083 euryale
euryale's picture

I thought they bought with leveraged money and sold them for money? + commissions....

Wed, 03/09/2011 - 17:27 | 1034135 brian0918
brian0918's picture

So we are paying a premium... to buy our own debt??? It can't be that insane, can it?

Wed, 03/09/2011 - 17:38 | 1034177 Larry Darrell
Larry Darrell's picture

It IS that insane.

And that's why Tyler is so frustrated that he can't get ANYONE ELSE to even do a report on this or get it to go more mainstream.

FWIW........Tyler, please do NOT stop reporting on each and every one of these.  I argued with my father forever over what was happening with no results.  When I finally printed several of these reports out and laid it bare in front of him, it clicked.

Please do not stop compiling these.  I'm starting a folder where I can save each of these reports.  It is the one thing I think gets it through to people just what a raping the middle class is getting.

Wed, 03/09/2011 - 17:39 | 1034179 Dixie Normous
Dixie Normous's picture

Shhhhhh, don't tell anyone.

Think about it simply: Treasury sells bonds - primary dealers "buy" them - 2 weeks later fed buys them from PDs.

Nobody on wall st does anything for free so yeah this amounts to creating a nice little cash cow for those titans of finance.  Oh, and yes it's at the expense of the the taxpayer.

Nice work if you can get it.

Wed, 03/09/2011 - 22:01 | 1034903 Iam_Silverman
Iam_Silverman's picture

"Nobody on wall st does anything for free so yeah this amounts to creating a nice little cash cow for those titans of finance"

 

So, a stealth bailout then?  Keeps the TBTF banks alive while covering the tracks they'd otherwise be leaving as they dine at the trough filled by the American Taxpayer?  Ahh, such an insidious plan, those clever bankers do tend to take care of their own!

Thu, 03/10/2011 - 19:25 | 1038566 Guy Fawkes Mulder
Guy Fawkes Mulder's picture

Seven-gram rocks aren't cheap, duh.

How else will they get the money to pay for them?

Wed, 03/09/2011 - 17:43 | 1034190 slackrabbit
slackrabbit's picture

I remember 'in the old days' we had a justice department.....

Wed, 03/09/2011 - 17:51 | 1034212 CulturalEngineer
CulturalEngineer's picture

Yes, it is that insane. Actually its worse.

P.S. I also always liked Ayn Rands books... and some of her ideas. But she and her followers missed a big one by not understanding the role of biological altruism (which is about in-group vs out-group) and its distinction from intellectual altruism (which is about being kind and empathetic)... and how that leads to the insane, Greenspan/Rubin de-regulatory frenzy, elitism and cronyism.

Ayn Rand & Alan Greenspan: The Altruism Fly in the Objectivist Ointment

http://culturalengineer.blogspot.com/2009/10/ayn-rand-alan-greenspan-alt...

Wed, 03/09/2011 - 18:01 | 1034228 brian0918
brian0918's picture

Greenspan has not been an advocate of Rand's ideas for decades. He's a statist just like everyone else with political pull.

Thu, 03/10/2011 - 03:10 | 1035831 Dont Taze Me Bro
Dont Taze Me Bro's picture

Ayn Rand was a fraud

Wed, 03/09/2011 - 17:11 | 1034086 NotApplicable
NotApplicable's picture

Trick is, they aren't the same amounts of money.

Wed, 03/09/2011 - 17:12 | 1034090 agrotera
agrotera's picture

I guess securities laws (nor other laws for that matter, or they will lobby to get the laws to not apply like revocation of Glass Stegall so they could gamble depositors money) dont apply to the TOOSACREDTOFAIL beloved of the Fed--so the illegal CHURNING wouldn't apply here.

Wed, 03/09/2011 - 17:14 | 1034100 IQ 145
IQ 145's picture

 They sell them back because they make a huge profit; which is paid by you and your descendents to them. this is not a free market operation; there is no risk; it is a give-away program for these very wealthy "designated" traders; ie, members of this particular Mafia. Hence, the outrage.

Wed, 03/09/2011 - 17:34 | 1034159 Michael
Michael's picture

If we abolish the Federal Reserve Corporation, The federal government can borrow the money from itself at 0% interest and pay no fees to Wall Street. Winning!

Wed, 03/09/2011 - 23:48 | 1035326 TwoShortPlanks
TwoShortPlanks's picture

In a property boom you flip houses to make quick returns and let someone else carry the long-tem debt and property value increase, right? Well, these guys are flipping Bonds to make a quick buck, but, there are no buyers out there, so the Fed buys them up.

So the Treasury raises the debt, sells it on the open market, dealers pick them up (with provision that they'll be bought of course), flips them, and the Fed puts them on it's balance sheet.

SO, essentially the dealers are making money for free and the US tax payer, and to a limited degree, the rest of the world are picking up the Tab. The hardest hit are the US Tax payer because they get watered-down assets for debt that was raised by the Treasury...effectively, the money which goes to the US Government, for whatever, has had the cream skimmed off the top...LOL!!!

And Americans haven't grabbed their Pitch Forks yet...shameful!!!

Wed, 03/09/2011 - 16:38 | 1033977 Michael
Michael's picture

Bill Gross may be more like Rick Santelli than I think.

Wed, 03/09/2011 - 16:57 | 1034043 jus_lite_reading
jus_lite_reading's picture

You're only winning when you have two girlfriends and one of them is a porn star!

BTW if anyone is keeping tabs of the "dealer fees" (commissions) the PDs have collected since last year, I think we're running over $700 MILLION! THATS JUST ON COMMISSION of POMO BULL SHITE!!

Wed, 03/09/2011 - 17:51 | 1034213 buzzsaw99
buzzsaw99's picture

Is there any doubt the PDs have more hookers and cocaine than anyone?

Wed, 03/09/2011 - 18:14 | 1034279 TeamAmerica
TeamAmerica's picture

Pfft!   Cocaine is so low-brow; even a gutter whore can buy a rock.

Men of taste & sophistication indulge in substances we don't even have street names for.   Extract of pineal, anyone?

Wed, 03/09/2011 - 16:45 | 1033996 DB Cooper
DB Cooper's picture

Tyler - Could someone compute the premium cost for them buying the expensive bonds vs. the cheapest for this auction or the total for QE2?  I've pointed this out to my "representative", but of course, I haven't received a reply.  I feel I would have more ammunition if I could summarize the cost to the taxpayers and ask why?

Wed, 03/09/2011 - 16:53 | 1034025 Racer
Racer's picture

Ah yes, "Their" representatives will ignore you

Wed, 03/09/2011 - 16:46 | 1034001 Richard Chesler
Richard Chesler's picture

how much are the Primary Crooks making as a result of this travesty?


Wed, 03/09/2011 - 18:05 | 1034250 slewie the pi-rat
slewie the pi-rat's picture

listen.  2big2failRuS = primary dealers and their immediate agents.  the primary dealers are the agents of the FED.  they hafta meet expenses, ya know, and some of the other fractional loan stuff isn't doing so well, so they are primarily working at keeping the liquidity up in a somewhat shaky system of asset "backing". 

in other words, if the day should happen upon us when the assets of the insolvent must be marked to market b/c they are actually being liquidated, the folks who have already taken full advantage of the FED-provided liquidity, available to all, i might add, while it lasted, will not be in any of those lines, thank goodness!

so, we've been encouraging people to think for themselves and act for themselves in ways that mean thay can protect themselves,  and most of us are doing this for the sheer joy that it is happening!

everyday is payday for a volunteer...

Wed, 03/09/2011 - 16:49 | 1034004 clones2
clones2's picture

Somebody want to explain the process of the PD's flipping these bonds back.  I don't totally understand the process of these auctions.

Thanks...

Wed, 03/09/2011 - 17:01 | 1034051 smeagol
smeagol's picture

The PDs buy the bonds from treasury, 2 weeks later they sell them to the FED, for cash(at profit) and with the cash they buy equities. Circle jerking at its best.

Wed, 03/09/2011 - 17:02 | 1034056 Paul S.
Paul S.'s picture

Sure.  Are you familiar with money laundering?  It's illegal for the Fed to fund the Treasury directly so the PD acts as the legitimate business that the money gets siphoned through.  The PD gives the Treasury a dollar, the Fed gives the PD a dollar (plus a premium, who gives a shit what it is, just plug another zero in the excel sheet at the Fed).  

Wed, 03/09/2011 - 16:49 | 1034009 TradingJoe
TradingJoe's picture

Ahhhhhh! it's Sooooo Goooood to Be A PD!

Wed, 03/09/2011 - 17:05 | 1034069 jus_lite_reading
jus_lite_reading's picture

Well, how else can they make $50 million bonuses? Retail traders have left the building! ZERO retail volume and if there is ANY it's to sell!

Wed, 03/09/2011 - 16:51 | 1034015 williambanzai7
williambanzai7's picture

Isn't the whole point of this travesty to allow the  vampire PDs to suck everyone dry?

Wed, 03/09/2011 - 17:03 | 1034060 Dixie Normous
Dixie Normous's picture

Yup, backdoor bailout.  Theme for some Billy Ban art!

Wed, 03/09/2011 - 16:54 | 1034026 ghostfaceinvestah
ghostfaceinvestah's picture

Gold is at $1430, somebody cares.

Wed, 03/09/2011 - 17:18 | 1034107 IQ 145
IQ 145's picture

 Exactly. Quite a few people care, and do not approve.

Wed, 03/09/2011 - 17:02 | 1034054 Poor Grogman
Poor Grogman's picture

Like in a dream things seem to be happening in slow motion.

But when historians look back in 50 years they will marvel at how quickly the Fed actually fell apart.

Wed, 03/09/2011 - 17:02 | 1034057 mcguire
mcguire's picture

you might say this is spineless, but perhaps it is simply just being human..

http://www.bloomberg.com/news/2011-03-09/human-penises-evolved-to-promot...

Wed, 03/09/2011 - 17:05 | 1034063 Village Smithy
Village Smithy's picture

Please don't stop reporting this. Sooner or later somebody will have to wake up. How about it Mr. Howard Dean? 

Wed, 03/09/2011 - 17:15 | 1034099 euryale
euryale's picture

I second - please keep reporting this...I know it gets monotonous, but we do appreciate it.

Wed, 03/09/2011 - 17:08 | 1034077 SpeakerFTD
SpeakerFTD's picture

CNBC is reporting on MolyCorp, a company with quarterly REVENUE of 21.7M.   Is that really the best CNBC can can do?   A single Wal-Mart store  probably pulls that down more than that.

Wed, 03/09/2011 - 17:12 | 1034093 clones2
clones2's picture

going to be $80 million this year. :-)  That justifies a 4 $billion market cap right?

Wed, 03/09/2011 - 17:20 | 1034119 IQ 145
IQ 145's picture

 If you believe, if you really believe; then Tinkerbell can fly ! My opinion; fuck no it doesn't.

Wed, 03/09/2011 - 17:21 | 1034123 agrotera
agrotera's picture

Politicians KNOW what is going on--they will weigh the water and if and when the Federal Reserve gets closed down, they will suddenly act outraged and act as if they never knew the scam...

sadly the Federal Reserve and the TOOSACREDTOFAIL are so powerful, they won't shut down until another scam is solidly set up and running as a replacement scam (like cap and trade).

THus, the only way to really have hope for justice is for all citizens to become watchdogs, and force honesty and return to a republic of honor instead of the bankrunbanana republic that our country has become...and i do love my country and have hope for a miracle.

Wed, 03/09/2011 - 17:46 | 1034098 plocequ1
plocequ1's picture

They have managed to cheat the math , Einsteins E=mc2 , Adam Smith and John Nashes Equilibrium theory. God bless them and congrats... They won.

Wed, 03/09/2011 - 17:18 | 1034105 trendybull459
trendybull459's picture

why we so ununited,please,visit our page with poll to vote for abolishing or leaving the FED,we glad if you promote us to others,so,we can see what people like us for:

http://trendybull777.blog.com/2011/02/21/hello-world/

it will take from you 5sec to vote,we thank you for it

Wed, 03/09/2011 - 17:20 | 1034121 somethingelse
somethingelse's picture

Tyler, we appreciate your efforts in exposing the fraud going on in these so-called "auctions"     Just like CNBC had ZeroHedge front and center this afternoon for your exclusive breaking news on PIMCO's Bill Gross divesting from U.S. treasuries for his fund....they (and a few righteous reps on capitol hill too) will eventually get the truth out there that you are sharing.

please stay with it if it's not too much trouble b/c it is important and history will look back on it as heroic patriotism on your part. 

Wed, 03/09/2011 - 17:54 | 1034215 oogs66
oogs66's picture

I think there are a few things going on here.

1) volumes in off the runs are much lower to begin with and many are held by Investors who can't sell for tax reasons (insurance companies in hold to maturity accounts in particular So most of what the dealers can buy/source is the on the run or recent issues. So it's not that surprising that the bulk of the fed purchases are on the run bonds. It doesn't explain why we continue his charade. At the inception of qe1 the treasury market was in disarray. Liquidity was qt such a premium and pd's were in full line item reduction mode so many bonds were virtually orphaned and traded way too cheaply and there were sellers. Qe1 helped fix that but now that it's back to biz as usual everyone should realize that the bulk of all gradin will be in the on the run bonds.

2) how do the pd's make money? Some of it is the same way as in auctions . They play with the market to create a little tail on new issues. They are usually successful at that little game. This process is similar. They know which bonds will be on the list. They try and push down on these a little prior to that Pomo. They start accumulating some inventory. Then as Pomo time comes they start buying more, but now with intention of drivig price higher. Then they offer their bonds and the bonds if some off their large customers to the fed at higher prices yet - the fed should pay a premium for size - in their mind. When the fed buys the dealers make some money on their inventory and they charge their customers a spread. Probably only a 64th but that adds up on billions every day and it's non risk for the pd. Why won't the fed publish prices paid? Why does fed publish the list anyways? Why not just sit back and buy on days with weakness and keep everyone guessing? I bet yields would be lower across the board if they used the 600 billion that way.

3) the pd's do not buy stocks with the Pomo money. They are too busy manipulating the next Pomo and no I bank would let teasury desk play wig that much money in stocks. The mechanism is more trickle down. As people get bought out of treasuries; some move to corps or stocks. Those whole sold out of corps move to junk or stocks. Companies that get the money by issuing corps then do share buybacks or m&a. End result is same but less direct. Has anyone seen a study showing how good or bad companies are at share repurchase? It seems like they all bought back in 2007 and 2008. Did nothing in 2009 and sold first part of 2010 and now buying back at top? Aig has to be a prime example?

4) bizarrely enough - treasuries ar specifically NOT securities so no insider trading rules. Bizarre and true. I wish I had been on paulsen's speed dial. Now that was a lot of free money given to the pd's where every move was telegraphed. I'm sure Ben does the same thing - even if unwittingly.

Wed, 03/09/2011 - 18:10 | 1034261 Debtless
Debtless's picture

Is there any actual evidence of silver settlements at the COMEX where contracts are coerced in cash settlement with at least 25% bonus? Anyone?

Wed, 03/09/2011 - 18:24 | 1034320 Overflow-admin
Overflow-admin's picture

"It is now a true Vaseline free for all."

Nice metaphor Tyler; here's some extra...

First watch Inside Job http://www.imdb.com/title/tt1645089/ @ http://stagevu.com/video/evkaiqofcvxv (you'll need to install/update DivX plug-in)
Now watch Das Boot http://www.imdb.com/title/tt0082096/ (sorry, no direct link)

Here's the allegory: gov vaseline, fed torpedos, us all in the oil tanker.

Wed, 03/09/2011 - 18:41 | 1034388 SilverBaron
SilverBaron's picture

And we would've gotten away with it if it wasn't for that meddling Tyler Durden.

Wed, 03/09/2011 - 19:19 | 1034494 MachoMan
MachoMan's picture

I got in a debate with a college professor buddy (phd in finance).  Needless to say, we disagreed as to the concept/definition of monetization.  I still cannot fathom how this is not patent, outright, in your face monetization.  To argue anything otherwise is to argue form over substance...  a precarious position at best.

Wed, 03/09/2011 - 21:10 | 1034791 glenlloyd
glenlloyd's picture

I can hear it now, the Fed will claim (as did Weimar) that they inflated because of rising prices and wages and not that their printing precipitated the inflation.

Thu, 03/10/2011 - 01:26 | 1035658 lasvegaspersona
lasvegaspersona's picture

shhh,listen, are those the bond vigilantes approaching?

Thu, 03/10/2011 - 05:20 | 1035939 theprofromdover
theprofromdover's picture

Can someone do a simple chart which shows the commission being syphoned for every one of these transactions, translated over a year or so.

Sat, 03/12/2011 - 00:56 | 1043397 beauxe
beauxe's picture

Is it possible to track the original purchase price by the bank and compare to the purchase price of the Fed to estimate how much INCOME the government is handing over to the broker/dealers/banks?  This is effectively a continuing "grant" of capital to banks of taxpayer funds.

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