"Secret Fed loans" that were not so secret

rcwhalen's picture

Below is a post from Dave Altig at FRB Atlanta -- Chris



May 27, 2011

"Secret loans" that were not so secret

I confess to be more than a little surprised when yesterday's morning reading turned up the following headline, from Bloomberg's Bob Ivry:

"Fed Gave Banks Crisis Gains on Secretive Loans Low as 0.01%"

The crux of the story found its way to the Wall Street Journal's Real Times Economics blog:

"Credit Suisse Group AG, Goldman Sachs Group Inc. and Royal Bank of
Scotland Group Plc each borrowed at least $30 billion in 2008 from a
Federal Reserve emergency lending program whose details weren't revealed
to shareholders, members of Congress or the public. The $80 billion
initiative, called single-tranche open-market operations, or ST OMO,
made 28-day loans from March through December 2008, a period in which
confidence in global credit markets collapsed after the Sept. 15
bankruptcy of Lehman Brothers Holdings Inc. Units of 20 banks were
required to bid at auctions for the cash. They paid interest rates as
low as 0.01 percent that December, when the Fed's main lending facility
charged 0.5 percent."

I think a couple of clarifying points are in order. First, these
transactions were hardly, in my view, "secretive." On March 7, 2008, the
following was posted on the New York Fed's website (with similar information provided by the Board of Governors):

"The Federal Reserve has announced that the Open Market
Trading Desk will conduct a series of term repurchase (RP) transactions
that are expected to cumulate to $100 billion outstanding. This
initiative is intended to address heightened pressures in term funding
markets. These transactions will be conducted as 28-day term RP
agreements in which primary dealers may elect to deliver as collateral
any of the types of securities—Treasury, agency debt, or agency
mortgage-backed securities—that are eligible as collateral in its
conventional RP operations."

The magic words in the Bloomberg piece are apparently "details weren't
revealed." While it is true that specific transactions with specific
institutions were not published in real time, the overall results of the
auctions (both total purchases and the lowest interest rate paid) were
posted each day (as noted in the Bloomberg article), and the list of
potential counterparties (the primary dealers) was (and is) available for all to see.
I suppose we could have a reasonable debate about how much information
is required to support the claim that "details" were made available. But
I have a hard time with the notion that publicly announcing the
program, offering details on size and prices in each day's transactions,
and providing general information about the entities in the game
constitutes "secretive."

Another aspect of the Bloomberg piece that I question is the claim
that the transactions were "loans" provided under an "emergency lending
program." That language is quite imprecise and evokes the thought of the lending programs that relied on the authority granted under "unusual and exigent circumstances" by section 13(3) of the Federal Reserve Act.

The Bloomberg article does not help in avoiding possible confusion on this point by including this passage:

"Congress overlooked ST OMO when lawmakers required the central
bank to publish its emergency lending data last year under the
Dodd-Frank law."

But as the New York Fed's public notice made clear at the time, this
was not outside of the Fed's standard authorities—and not unprecedented
(emphasis added):

"When the Desk arranges its conventional RPs, it accepts
propositions from dealers in three collateral 'tranches.' In the first
tranche, dealers may pledge only Treasury securities. In the second
tranche, dealers have the option to pledge federal agency debt in
addition to Treasury securities. In the third tranche, dealers have the
option to pledge mortgage-backed securities issued or fully guaranteed
by federal agencies in addition to federal agency debt or Treasury
securities. With the special 'single-tranche' RPs announced today,
dealers have the option to pledge either mortgage-backed securities
issued or fully guaranteed by federal agencies, federal agency debt, or
Treasury securities. The Desk has arranged single-tranche transactions from time to time in the past."

Finally, identifying the one auction where the Fed "paid interest
rates as low as 0.01 percent" is misleading. To begin with, the 0.01
percent refers to the so called "stop-out" rate, which is the lowest
rate paid by bidders in any particular auction. The operations in
question were multi-price auctions, so the lowest rate cannot be assumed
to be the average rate paid on the repo transactions. In any event, the
program was terminated after two auctions when the stop-out rate hit
the very low levels the Bloomberg article referred to.

More generally, the auction rates in these ST OMOs tracked short-term funding rates over the course of the program's existence:


The interest rates associated with all operations obviously fell as
the provision of market liquidity became more aggressive after the
failure of Lehman Brothers. You are free to object to that response, but
singling out ST OMO as secretive or special in anyway isn't, in my
opinion, justified.


Photo of Dave AltigBy Dave Altig
senior vice president and research director at the Atlanta Fed

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aerial view's picture

Yes, of course we believe you Mr. Altig

The Fed is always open and transparent

The Fed is a government institution

The Fed treats all banks equally

The Fed has engineered a great recovery



anony's picture

That you are suprised by the stealth bullshit that has and is still going on (even with this 'surprise', you are only seeing the tip of the iceberg) is testament to nothing but your naivete.

To think that your government is telling you anywhere near all that is happening is one reason that this government needs dismantled, if not thru vote than by a revolution.

Tear it down.  Right down to the foundation and start over. But allowing for a bust up of the country into at least a dozen regions that have their own elected representatives.  States rights have been subsumed and practically made obsolete because of the heavy hand of the jews of Wall street, Fleet Street, Israel, and the control they exercise over our financial destiny.

Get rid of most of them, see how fast things change for the better for everyone.

Substitute the names Corleone, Capone, Brazzi, and Siciliano for Greenspan, Bernanke, Geithner, and Blankfein and see how fast profiling works.

Downtoolong's picture

mortgage-backed securities issued or fully guaranteed by federal agencies…

A pile of shit wrapped in a fancy crust of fed guarantees is still a shit pie.

With the special 'single-tranche' RPs announced today, dealers have the option to pledge either mortgage-backed securities..

So, the Fed gives the PD’s hard cash for shit which they can then go out and invest in more shit at a Fed guaranteed spread.

And, why didn’t we all take notice of this heavily advertised event (sarcasm)? We were probably all too busy watching the equity in our homes evaporate, our retirement funds getting wiped out, our friends and neighbors losing their jobs and businesses, and our entire economy falling into an abyss, while our government sat stunned and clueless of what to do about it. This we dealt with day in and day out. Yet somehow, in their infinite wisdom, the Fed and its Wall Street masters decided that the details of this one lending action, this common insignificant event (as they like to call it now) would have been just too much for all of us to bear. We wouldn’t have been able to handle this truth.

I’ll tell you what I could have handled then, what would have made my life a whole lot easier at the time; a free zero interest loan to invest in anything I wanted with a guaranteed yield backed by the U.S. Government. That’s something I could have handled just fine.  I would have even put up my real house as collateral for the loan instead of some bogus mortgage backed security which was probably overrated by S&P in the first place and which Goldman probably borrowed from some poor unsuspecting client that didn’t have access to this special facility. And if it had happened this way instead, I wouldn’t have hidden it from anyone. I would have gone running down the streets telling everyone about the sweetest deal of my life.



Ted K's picture

I'd like to see this cocksucker Altig answer 1 question: "Do you think giving minorities a 0.01% payday loan is stimulative to the economy??? It's a short-term loan for poor minorities and white trash. You ready to sign on to that dickweed??? Oh!!! I forgot!!!! The 0.01% is only 'stimulative' if your last name is Goldberg, Oppenheimer or Rabinowitz. Sorry, how silly of me to forget the rules chief"

Ted K's picture

How many strip club comps does Altig get from Blankfein for this??? Isn't this kind of like Kim Kardashian saying "I wasn't a whore in that video. At no time during taping was money being exchanged",  ??

ThirdCoastSurfer's picture

Imagine you arrive at work one day to discover that your mark-to-market is junk but you can borrow at .01% and invest in Thrifty Rental Car at $1 per share along with all the rest in a broad new investment portfolio distinct and separate from the junk and within a little more than a year Thrifty would be trading at $87! 

The headlines commonly blame subprime borrowers for the crisis because they overextended their credit and/or lost their somewhat dubious source of income when things went south. However, it was also common practice for many in the investment community to borrow at incredibly high leverage.  

My brother works at a very prominent private REIT that openly bragged that they were able to buy things like nursing homes and  student housing with $3 of principal for every $100 borrowed. They were not unique. As a result, and not surprisingly,  the acquisition prices for these properties skyrocketed - and so did the cost of rent.  Additionally, it is important to understand that properties are not purchased by single entities but groups. Blackstone and KKR are both partners and competitors. 

One small poor example: KKR, Blackstone, Silver Lake Partners, Bain Capital, Providence Equity Partners and TPG on the $11.3 billion leverage buyout for their purchase of SunGard Data Systems in late 2005. 

Imagine what it takes to manage all the interests of just this single purchase! The lawyers, accountants and analysts just to cross verify each partners share. These people all know each other. They all know all the right people. You can't imagine the number of high priced uber successful people people who's ass would have been handed to them in a bag if the bailout had not come to the rescue. 

The question should not be did it happen and why, but what obligation for the fact should be expected. 

I guess subprime borrowers continue to live in houses that cannot be foreclosed on and thus pay no cost but actually benefit from their misfortune but it's doubtful they are smart enough or determined to use the opportunity to create something sustainable. Those in finance however were KEPT whole and thus have or will benefit greatly from a position that did not require a step back to take two forward. 

The whole reason this grand experiment is doomed to failure then is that all these great minds, all these best and brightest, see what happened as a right, as a privilege and not as an obligation or a debt to society failing to understand that creative destruction is a necessity that cannot be subverted. 

Everybodys All American's picture

You work for the FED ... what else would you say other than it's all gooooood.  In other news ... Greece's Papandreou vows to enact austerity programs. I believe both of you fellas are liars.

Coldfire's picture

"Dave Altig" is remarkably human. For a lizard.

boeing747's picture

"I'm afraid if we release the information of who received bail out money, then no body will borrow from us" a Fed guy said in Congress.

MrBinkeyWhat's picture

Me too!!! I want a .01% loan. Or better still... I want to be a "preferred dealer" for the next POMO. Just once.  Please....

lunaticfringe's picture

Can I haz .01% loan?

AmCockerSpaniel's picture

I've got more seniority than you..... So; I get mine first, and at 0.010001%

AurorusBorealus's picture

With all due respect to Mr. Altig, I do not believe that his efforts to paint the fed's actions in the best possible light will go over very well here on zerohedge.  I have noticed the Fed becoming much more chatty with the prols these days though.  One request, could I get $30 billion from the fed at .01% or how about .05%?  I am vital to the economy in that I do nothing, just like bankers.

blunderdog's picture

Let's don't be unrealistic.  A $30 billion loan even for the punitively high interest rate of 2% would be good enough, don't you think?

(Personally, I'll take any billion dollar loan at any interest rate the Fed wants to offer me.)

AmCockerSpaniel's picture

Lets be real here. It is usual for all bidders to get the same best deal, or 0.01%

What_Me_Worry's picture

"I work for the Fed, so obviously I am completely objective in my opinions.  Further, it is no secret that we help out foreigners with billions in cash/weapons one minute and then declare war on them the next.  See Saddam, OBL and Libya."

JW n FL's picture

the banks that got these .01% loans.. how much or where were they on the list of top lobby dollar suppliers?

I am going to guess and say pretty high up.. and even though the Bank itself may not look like a big bank.. which big bank owned the stock or which shareholder / shareholders son / daughter..

its like this see... there is a big club, seeee... and you aint fucking in it seeeeee?

Seasmoke's picture

wonder what that sellout Judd Gregg has to say about this

hurdygurdypauliepoodle's picture

Ya, @ bolweevil, because you KNEW what TAF meant and read the news release and knew where the funds were going!  *laughs* .  But yes you should really believe this guy because he can show you, on 3 separate pages (yes 3 separate pages!) where those loans went, so we all just should have known!  It wasn't secret, it was all in plain view, right?!

Besides, we all trust that the only motives of the Fed are to promote financial stability (prop up banks) even as the economy collapses at its feet.  After all, it ain't their money they are playing with.

Yes, the Fed was very "open" about it.  All you had to do was look on the website... silly people!   it was there, albeit without any details at all...

Bernanke professes he was unaware... and so it wasn't released with the rest of his disclosure.  And where was this money going?  Ah yes, to prop up banks and throw good money after bad, even if they were European.  But it's OK!  They were using the same shitty mortgages they were trying to offload in the hot potato pass off game near the end, as securities! 

Shitty?  How can they be shitty when they were so highly regarded by S&P?  It was garbage, but triple A garbage!  Such wonderful excrement that the Fed bought a ton of  that toxic slime.    But its OK, because it wasn't their money they were playing with.

And, we wouldn't want any of these crooked banks or banksters to  fail would we?  They are, after all, too big for their britches and needed something to show for it in case it all got investigated and they had to pass the smell test.  (even if it was to see how bad the shit smelled...when lightly sniffed in Basel) and I am sure they didn't make money on it...right?  No one actually made money  hand over foot with loans that were supposed to free up the market ...  practically interest free loans they were supposed to be lending with? 

The taxpayers were never in jeopardy!  hell no!  And look where we are now?  The banks are all cozy and back to giving bonuses.  (They gave bonuses back then too, but called them deferred, because once this came out they didn't want to look "bad."  HAH!) And the economy is back on track right?  OOOOOOOPS!

Wait... look who the biggest American bank holder of those loans is... C'mon... take a guess!  Yes... it was the Squid itself.  But all loans extended under the TAF were "fully collateralized" and repaid... so who gives a crap if they propped up banks that should have failed!  it was all worth it in the end!  HALLELUJAH!

Yep the bad times are over folks.  None of this was secret as they played it all out right in front of you and you said thank you... That lil bit of debt isn't a problem at all.  And why worry when you have the Fed looking after you all so well?

This Fed guy is saying nothing here, move along ... OK if you say so ...  bahhhhhh!

disabledvet's picture

I sense "Warren Buffet moment part II" coming.  I get the feeling because Goldman has suddenly said "here's your billions, Warren."  The imprecise title of this my next attempt of a "Blockbuster" is "Europe On Its Knees."  At some point he really will be "Buffet, Inc." and "simply be the bank."  Right now all he needs to add is a private energy company to his private railroad.  Conoco/Phillips still acts like a dud though but it's stock price has certainly recovered dramatically.  He probably could have bought it in 2009 (General Electric?) but now is certainly challenging!  I'm still a far bigger fan of "the insurgents" and of course we shall see about "The Man" (also known as Exxon/Mobil) which bet the farm on natural gas/timed its purchase perfectly--and has been running its prize..."in a non-growth oriented fashion" (dp? (short for diplomatic)) for some time.

Moe Howard's picture

Why are they giving American assets to non-American banks?

A_MacLaren's picture

The global fiat banking cabal don't believe in borders.  Borders are arbitrary political divisions helping to sustain the divide and conquer, us vs them meme, a handy diversionary tactic. 

The Fed, as First Fiatista, pumped liquidity to all cabalistas, either directly or indirectly through other central banksters to support the extractionistic Ponzi, and keep it from failing.

In essence, they placed a blocking board in the domino fall path.


Imminent Crucible's picture

I have to choose between the objectivity of bloomberg.com and the full faith and credit of the Atlanta Counterfeit Bank?  Is there a Door #3?

JW n FL's picture

it is so hard to find where the money went.. and then even of you found it.. you would need to sift thru it all to see where it went...


why would you wanna do all that work when you can bitch about it and make yourself feel better!


your feelings can not be that wrong! all those poor people spending all that welfare money while you sit around not looking for information.. feeling this way or that..


http://goo.gl/TMl74   $15 Trillion in Loans


$16 Trillion dollars.. and who it was given too.. not on fucking penny went to welfare / food stamps and / or government workers.

Guess who back stops all $16 Trillion? who pays for any default(s)? who negotiated the terms?

rocker's picture

How quick we forget what really matters.

Bolweevil's picture

So Bloomberg is sensastionalist? Thanks RC Chris Dave Altig Whalen. (slow weekend)

JW n FL's picture
by Bolweevil
on Sat, 05/28/2011 - 10:17


So Bloomberg is sensastionalist? Thanks RC Chris Dave Altig Whalen. (slow weekend)


Go Team Republican!! YAY!!! Austerity agains the POOR!!! YAY!!!!

http://goo.gl/FnxBZ  Treasury Direct $14 Trillion Debt


http://goo.gl/TMl74   $15 Trillion in Loans


http://goo.gl/EXzal  ='s $29T *** (Iran says $31 trillion)


$16 Trillion dollars.. and who it was given too.. not on fucking penny went to welfare / food stamps and / or government workers.

Guess who back stops all $16 Trillion? who pays for any default(s)? who negotiated the terms?


Bolweevil's picture

Ask and ye shall receive.

rocker's picture

+1  JW   You and ZH rule.

max2205's picture

By Dave Altig
senior vice president and research director at the Atlanta Fed


IdioTsincracY's picture

Fuck the Oligarchs ... the Elites ... the FED, the Banksters, the Financial moguls ... FUCK THEM ALL!!!

MrBinkeyWhat's picture

Hi Guy! You must be some kind of "-troll". See you at Survivalblog, and LRC.com ;-)

Urban Redneck's picture

Scandalous headlines sell ad space, and Bloomberg has some legal bills to pay after fighting the FED all the way to the Supreme Court just to get the documents in the first place.  It's not nice, or thorough journalism.  However,by fighting Bloomberg all the way to the Supreme Court over the details, the FED wasn't being nice, or disclosing information for which there was legitimate public accountability concern.  

hurdygurdypauliepoodle's picture

Erm, rather then supply information, they did a document dump.  Nah, nothing to hide there.  (Goldman did the same to the SEC)



Urban Redneck's picture

Perhaps I've just become too accustomed to lawyers and bankers BS.  But if the average STOMO rate was above the Fed Funds rate (per the chart), then the rate isn't relevant to anything except generating buzz and selling add space.  Bllomberg's little trolls are just returning the Fed's childishness tit-for-tat. 

Unlike they fact that that the banks needed $100 billion MORE liquidity then the dumb asses on Capitol Hill responsible for oversight were aware of- even though it was on the Fed's website.  If elected officials can't keep track of little things- like loaning (repoing) $100 billion over a couple months, then they should be fired and their salaries and pensions repo'd.

rocker's picture

On Friday Bloomberg reported that the N.Y. Fed did not supply all the info. They said they found more holes than answers. When they asked the N.Y. Fed they shrugged their shoulders at them again, meaning they will not comply.

So... Who runs our Nation ???  Hey, I hear some suspicious noise inside the FED. Supreme Court says break down the doors. LOL 

Urban Redneck's picture

Do you have a link to the article - I can't find it on Bloomberg or Google?

Richard Chesler's picture

So bankster theft and corruption has been out in the open for quite some time now. What's your point?


Urban Redneck's picture

All war is based on deception... If ignorant both of your enemy and yourself, you are certain to be in peril.

For Bloomberg to allege the that Fed withheld documents from a court ordered release is actually rather serious- if they did make the allegation and provided evidence to support it, which is uncertain at this point. 

Anybody can become angry - that is easy, but to be angry with the right person and to the right degree and at the right time and for the right purpose, and in the right way - that is not within everybody's power and is not easy.

I've looked twice in two places and can't find the article mentioned, either the acusation needs to be substantiated or withdrawn.

There are horrible people who, instead of solving a problem, tangle it up and make it harder to solve for anyone who wants to deal with it. Whoever does not know how to hit the nail on the head should be asked not to hit it at all.