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The World's Most Important Trading Desk Is Not At Goldman, But Is On The 9th Floor Of 33 Liberty Street

Tyler Durden's picture





 

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.

 


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Tue, 11/10/2009 - 11:34 | Link to Comment Gilgamesh
Gilgamesh's picture

That 'sick joke' describer from AE is very befitting to much of what is going on in today - behind the scenes, or in plain view.

Tue, 11/10/2009 - 11:37 | Link to Comment E pluribus unum
E pluribus unum's picture

" But the best outcome would be that the Fed would be forced to start filing 13-F/G/H reports listing its holdings.... The best way to achieve this is to show what stocks the Fed is currently a holder of."

There's no reason for the "little people to know. As long as the boys at GS know what to buy, the rest of us will just follow.

 

Please stop bothering the Fed. They know what's best for us. We, the sheeple, will do as we are told.

 

Tue, 11/10/2009 - 12:21 | Link to Comment curbyourrisk
curbyourrisk's picture

"We, the sheeple, will do as we are told."

 Forrest Gump almost had it right.

Stupid does...what stupid is told to do.

 

STOP BEING STUPID PEOPLE........START TAKING BACK OUR COUNTRY!!!

Tue, 11/10/2009 - 13:19 | Link to Comment Greyzone
Greyzone's picture

The people at the top own the banks, the Fed, the majority of the courts, the US Congress, and 1600 Pennsylvania Avenue. Do you seriously expect them to just hand it all back to you if you ask nicely, pretty please, with sugar on top?

You live in a 21st century analogue to a fascist state as defined by Mussolini, that deep ugly marriage of corporations and government at the expense of the individual. You can't vote it out because they own the voting machines.

Your only choices are:

1. Accept.

2. Fight.

3. Emigrate.

That's it. That's what you can do. The majority has clearly decided to accept. No one is visibly fighting. Some people are visibly emigrating to escape. While there's no perfect answers elsewhere in the world, there are plenty of places that are less bad. I suggest renewing passports while it remains possible to do so. If you're really brave, then you may want to "Take the Gap", as the Brits say.

Tue, 11/10/2009 - 14:15 | Link to Comment Mark Beck
Mark Beck's picture

Really, after the financial crisis, and ridiculous derivative/swap risks by investment banks, like Bear Stearns, I do not really see an overwhelming intellectual mastermind from anywhere. Be it Rothschild, Gump or Big Bird. If you wanted to take risks in derivatives, why not create a separate corp to test the waters? No, lets bet the whole 80+ year history of the Bear Stearns Company. What? are you serious? What people do they have on staff that cannot correlate mean wages to mean house prices? or give a down side risk to holding an investment you are unable to sell because it cannot be priced accurately in a falling market. Idiots.

No, stupid is as stupid does, and I see a whole lot of stupid from NY to Washington.

Tue, 11/10/2009 - 15:35 | Link to Comment Problem Is
Problem Is's picture

"Hello, Leon? Timmay here. Hey read this post on ZH would you?"

"Put this "curbyourrisk" on the terrorist watch list for me and uh... all the Goldman guys say 'Hi Leon'..."

"Hey! Who took Jamie off of my speed dial again?"

Tue, 11/10/2009 - 11:39 | Link to Comment lieutenantjohnchard
lieutenantjohnchard's picture

does the fed utilize hft? or dark pools?

Tue, 11/10/2009 - 12:22 | Link to Comment Athena
Athena's picture

Do they have a HAL 9000 co-located at the NYSE?

Tue, 11/10/2009 - 14:34 | Link to Comment Big Red
Big Red's picture

Maybe a herd of Non-Stop Himalaya's

Tue, 11/10/2009 - 12:57 | Link to Comment _Biggs_
_Biggs_'s picture

Good question.  You have to figure it is cloaked if this is "news."

Tue, 11/10/2009 - 11:45 | Link to Comment MinnesotaNice
MinnesotaNice's picture

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.

I wonder what the value of their portfolio is? How much leverage do they really have to independently move the markets... or perhaps as Joe Cocker would say... how much market moving must they do "With a Little Help From My Friends".

Tue, 11/10/2009 - 11:45 | Link to Comment Athena
Athena's picture

After discounting the Fed's initial price due to their nondenumerable debt to equity ratio, any positive price for the Fed's IPO is too much.

Tue, 11/10/2009 - 11:50 | Link to Comment bugs_
bugs_'s picture

Deep Sack.

Tue, 11/10/2009 - 11:52 | Link to Comment Anonymous
Tue, 11/10/2009 - 11:54 | Link to Comment earnyermoney
earnyermoney's picture

I seem to recall a congressman asking the Federal Reserve's legal counsel if the Federal Reserve was purchaising equities in an attempt to manipulate the market. The assertion was denied by the individual if my memory is correct. This article seems to contradict the testimony of the Fed's lawyer.

Tue, 11/10/2009 - 11:56 | Link to Comment Brett in Manhattan
Brett in Manhattan's picture

 

"(which some claim is merely HoldCo to the Fed's OpCo)"

 

William C. Dudley became the 10th president and chief executive officer of the Federal Reserve Bank of New York on January 27, 2009. In that capacity, he serves as the vice chairman and a permanent member of the Federal Open Market Committee (FOMC), the group responsible for formulating the nation’s monetary policy.

Mr. Dudley had been executive vice president of the Markets Group at the New York Fed, where he also managed the System Open Market Account for the FOMC. The Markets Group oversees domestic open market and foreign exchange trading operations and the provisions of account services to foreign central banks.

Prior to joining the Bank in 2007, Mr. Dudley was a partner and managing director at Goldman, Sachs & Company and was the firm’s chief U.S. economist for a decade.

Tue, 11/10/2009 - 11:59 | Link to Comment Stevm30
Stevm30's picture

Makes sense to me.

Tue, 11/10/2009 - 12:05 | Link to Comment Anonymous
Tue, 11/10/2009 - 12:06 | Link to Comment Anonymous
Tue, 11/10/2009 - 12:13 | Link to Comment aka_ces
aka_ces's picture

"the increasingly more irrelevant S&P 500"

=> what's the chance of migration to some (new?) extra-tentacle exchanges, where markets are approximately free ?  Is this possible ?

 

 

Tue, 11/10/2009 - 13:01 | Link to Comment Anonymous
Tue, 11/10/2009 - 12:19 | Link to Comment Anonymous
Tue, 11/10/2009 - 12:20 | Link to Comment Anonymous
Tue, 11/10/2009 - 12:41 | Link to Comment aka_ces
aka_ces's picture

("tentacle" in the broad-tentacle, big-tent meaning, i.e. not just GS but also the other big squids)

 

 

Tue, 11/10/2009 - 12:46 | Link to Comment RozzertheDropsky
RozzertheDropsky's picture

And another piece of the puzzle snaps into place. Could these revelations have anything to do with why Geithner thought an audit of the Fed would be "problematic?"

Tue, 11/10/2009 - 12:47 | Link to Comment jm
jm's picture

So they have unlimited money to prop up markets.  What happens when they have in their purview to tank industries out of favor by the executive branch, like say, health care or coal miners.  Or a company with highly visible opposition to Fed policy.

They can even self-finance these little ventures without printing any money.  How about shorting new bond issuance and buying CDS protection to help drive down the price, and profit on the short position?  

You have inside info on imminent bank implosions?  Self-funding bailout for the favored.  

Probably doing this already. 

Tue, 11/10/2009 - 12:48 | Link to Comment JackAz
JackAz's picture

An analog with the natural world: the Fed and the TBTF banks are cancers in the body of the economy. The problem with cancer is that it tends to grow, sucking more and more energy from the host body. The good news is that this growth tends to be self-limiting: at some point, the cancer requires more energy than the host body has and thus the cancer cannot grow. The bad news of course is that the host body tends to be "marked zero" when this occurs.

But - hey - I'm optimistic. All we have to do is wait for the Fed/TBTF cancer to kill the economy, then it will die, and a miracle resurrection will occur for the economic body, assuming there are any people left alive to trade with one another.

Can bankers be burned for fuel? When TSHTF, that would be good information to have.

Tue, 11/10/2009 - 13:08 | Link to Comment cthulhu
cthulhu's picture

IPO the Fed....great idea! And just think, there are so many other secretive, semi-clandestine groups whose only applicable laws are the ones they choose to observe. IPO the Cosa Nostra! IPO Colombian cartels!....

Tue, 11/10/2009 - 13:21 | Link to Comment Anonymous
Tue, 11/10/2009 - 13:27 | Link to Comment Benthamite
Benthamite's picture

Speaking of Loeb, I would not be surprised if he actually reads ZH.

Tue, 11/10/2009 - 14:14 | Link to Comment Anonymous
Tue, 11/10/2009 - 15:14 | Link to Comment Anonymous
Tue, 11/10/2009 - 16:31 | Link to Comment CB
CB's picture

Well said, but one must acknowledge how the sheeple can be easily led astray by well-intentioned and rather intelligent folks doing ***God's Will*** (aside from Bilderbergs & Lizard people, this is my new favorite bankster theme to pound upon).

Tue, 11/10/2009 - 17:30 | Link to Comment Anonymous
Tue, 11/10/2009 - 17:30 | Link to Comment Anonymous
Tue, 11/10/2009 - 17:37 | Link to Comment Anonymous
Wed, 11/11/2009 - 02:47 | Link to Comment agrotera
agrotera's picture

oops, the  privately held federal reserve owns more than half of all the DOW and also maybe half of all capital markets (who knows?) already...this robocat ain't coming out of it's bag since they own our country's elected officials, and they run an army of lobbyists(led by master x-enron lobbyist) to keep their gangster legislators happy. 

Meanwhile, we the people are busy scratching our heads since our of, by, and for the people government has indeed perished from the Earth and this fact bumps into our cognitive dissonance...we are a brainwashed, manipulated nation, suffering from cognitive dissonance and inertia.

Wed, 11/11/2009 - 01:22 | Link to Comment TumblingDice
TumblingDice's picture

When the fed owns every security out there will it really own anything at all? I think not.

Tue, 12/08/2009 - 19:27 | Link to Comment spisskyhrad
spisskyhrad's picture

Whether global warming, fixing health care or healing our "broken"

financial system, our power elite's siren call for

just a little more power continues. Monopolies are broken

in financial downturns.  Time is running out for

the the Al Gore set(who's favorite Bible verse is John 16:3).

 

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