The World's Most Important Trading Desk Is Not At Goldman, But Is On The 9th Floor Of 33 Liberty Street
Even though our good Samaritan friends at One New York Plaza may take offense to this designation, the trading desk that controls the formerly free world is not located anywhere on the premises of Goldman Sachs, but is instead situated on the 9th floor of 33 Liberty Street, also known as the home New York Fed. From a trading desk cluster at this location, 39 year old Brian Sack controls the uber-secretive money flows that determine the daily fate of credit, equity and virtually all other markets, that have now been subsumed by the government's central planning ambitions and aspirations to determine each and every uptick in the increasingly more irrelevant S&P 500.
Reports the WSJ:
Mr. Sack, 39 years old, is an economist who runs the markets group at
the Federal Reserve Bank of New York. The group runs the Fed's trading,
making it the bridge between the marble corridors of the Federal
Reserve in Washington and the bustling trading floors of Wall Street.
The center of life in the markets group is a glass-enclosed conference
room situated next to a small cluster of trading desks on the ninth
floor of the New York Fed. It overflows with people for a daily 9:20
a.m. meeting run by Mr. Sack. A few stray pictures of Alan Greenspan,
the former Fed chairman, still hang on pillars nearby.
The markets group grew enormously during the crisis, from about 225
employees to 400 people who monitor the markets for the Fed, manage its
portfolio and run the many new trading programs it has started. The Fed
holds more than 20,000 individual securities.
It appears, that aside from buying and selling Treasuries, and buying (not selling - need another buyer when selling something) MBS and Agencies, as well as the occasional stock (we jest, the Fed would merely allow banks to buy stocks, at no cost, courtesy of money it lent them from the Discount Window and the PDCF), Mr. Sack is the person responsible for the recent failed reverse repo test, which Zero Hedge documented extensively first (here and here).
Under one program called "reverse repos," the Fed will put a large and
growing portfolio of Treasury bonds, mortgage-backed securities and
debt issued by Fannie Mae and Freddie Mac into the market as collateral for loans, taking in cash in return.
"I am confident that we will be able to drain large amounts of reserves if needed," he said in an interview early last week.
That's interesting: I am confident, that based on your actions, you will not. Unless, of course, you i) acquiesce to the latest extortion demand from banks for capital ratio appeasement, and ii) go instead to money markets instead of taking money from reserves. Speaking of, Mr. Sack: please tell us why a $200 billion reverse repo test was failed when banks have excess reserves of over $1 trillion? Please write us at the usual address - we will be happy to post your observations to the general public.
The Fed has been testing out its ability to operate such a program,
which has made the market jumpy. Some investors worry that the tests
are a signal that interest-rate increases are approaching. In a
statement earlier this month, the New York Fed reassured investors it
was still in a testing stage. The tightening signal is most likely to
come from Mr. Bernanke and the FOMC, not the markets group.
And here's why even the WSJ think the Fed's claims that they have the situation under control are a joke:
The markets group and the FOMC are still sorting out many issues about
how to pull reserves from the financial system. One is who should be on
the other side of the market group's reverse-repo trading. The Fed
traditionally trades with 18 securities firms called primary dealers.
But officials aren't sure that these dealers have the capacity to
funnel potentially hundreds of billions of dollars of operations
through the market.
Back to the beginning, the reason why we claim that even Goldman (which some claim is merely HoldCo to the Fed's OpCo) can not hold a candle to the Federal Reserve when it comes to trading prowess is that the Fed is a "prime broker" for a client roster that even an "information arbitrageur" like Goldman would die to have access to:
The central bank is casting its net more widely. It could conduct
operations with Fannie Mae and Freddie Mac, money-market funds, or even
corporations, hedge funds or securities lenders like State Street
Global Advisers and Northern Trust.
Odd - the biggest custodians of stock loans portfolios (and those most happy to incite a massive short squeeze) having a direct line to the Federal Reserve. Where have we seen this before?
We have a modest proposal to Mr. Bernanke - it is time to IPO the Federal Reserve (with Goldman Sachs as sole lead underwriter of course). Obviously, the Wall Street cabal will never allow for Ron Paul's HR 1207 and comparable approaches to shed light on just what the quadrillions in securities that the Fed trades on a weekly, if not daily, basis are. Alas, the only way it appears to get some Fed color is for the world's most deranged money printer to become a publicly traded institution. And since we are all grown boys here, we can stop pretending that the Fed is anything but a machine that funnels money out of the global markets and redistributes it to the likes of Goldman et al: we believe that is worth a premium multiple and will obtain a pretty high Price to Earnings Growth ratio. Furthermore, with star traders like Mr. Sack, Goldman won't even need to do a reverse inquiry (like Merrill still does on all those REIT follow ons) when deteriming pricing for the Fed. Now, if the Fed does want to indulge Americans with some idealist hope that what the Fed does is for the benefit of the people, it could merely upstream 10-20% of the IPO proceeds to paying down 0.0001% of the trillions in new debt coming soon to a bankrupt America near you. Also, think of the investment highlights: cost of capital - zero in perpetuity: we print our own money.
But the best outcome would be that the Fed would be forced to start filing 13-F/G/H (and even D - it would be a sight to behold the Federal Reserve go apeshit activist on some pennystock, and have Ben Bernanke send 20 page Dan Loebesque letters to "hobnobbing" CEOs) reports listing its holdings. After all: the Fed is merely trying to get every human being to throw what is left of their unemployment checks into the market. The best way to achieve this is to show what stocks the Fed is currently a holder of. With such wise guiding leadership, it is inevitable that every single patriotic American will do their duty to go several million dollars in debt merely to clone the Fed's equity portfolio. And it will be smooth sailing from there, all the way until America's sovereign debt repudiation, some time in the 2012-2014 timeframe.