Treasury Department

The EURJPY, and its immediate computerized secondary derivative, the general market, its taking a nosedive. The reason, as HuffPo's Ryan Grim reports, is that the Senate has now accepted an expanded Fed audit. As usual, we will believe it when we see the full list of banks bailed out by the Fed, the collateral they pledged, the cash they received, the amount of bonus paid out, the Fed credit facilities involved, the total taxpayer money lost and never to be recovered, etc. Which is why we don't buy it for a bit, and we are fairly confident that Chris Dodd is blatantly misrepresenting reality, when he tells the House panel that "the Senate will accept an expanded Federal Reserve audit proposal from the House as part of Wall Street conference committee deliberations."

In a response letter sent to Alan Grayson, the Fed chairman has the following brief retort to the question of whether "the Federal Reserve- alone or in concert with the Treasury Department or any part of the government- ever taken any action with the purpose or effect of supporting the stock market or an individual stock": "The Federal Reserve has not intervened to support the stock market or an individual stock." Shocking. And we are confident that the fine people at Liberty 33 just sit all day, twiddling their thumbs now that the Fed is no longer in the MBS and UST monetization business. Furthermore, anyone who reads anything into the fact that the FRBNY is continuously ramping up its hiring of traders, both credit and equity, as posted in assorted public venues, is simply paranoid and does not understand that this is only due to Brian Sack's fascination in being surrounded by 400 traders daily. On the other hand, at this point pretty much everyone is aware of the sad state of FRBNY intervention, whether it is in the FX market or the gold market, and indirectly via the discount window and the repo system, in which banks purchase bonds at auction, using discount window or other zero cost capital, only to repo it back, and to use the proceeds to bid up stocks. Maybe Mr. Grayson can ask the Chairman whether the Fed is actively endorsing primary dealers to bid up risky assets to create the impression that since the market is ramping higher (on no volume, mind you, but who cares) that the economy is doing so as well (we will shortly have something to say that refutes this thesis, compliments of none other than Goldman Sachs). All cynicism aside, Grayson at least still continues to ask the right questions: among these are 1) How does the fed plan on dealing with the $1.7 trillion in MBS on the Fed's balance sheet, 2) Why Greenspan and Bernanke were so wrong in keeping the FF rate for so long, and how does the Chairman plan to reconcile the same bubble creation that blew up the economy last time ZIRP was around, with the deflationary threat to the economy, 3) Why does the Fed think a Tobin tax is bad (and, incidentally, why does the Fed even have an opinion on tax policy), 4) Why is the Fed failing at pushing unemployment lower even with ZIRP and QE, 5) How the Fed is lobbying on behalf of its, and Wall Street's interest, 6) How much gold should the US government own, and many others.

Today, the SEC is convening a one-sided panel whose job is to provide a fair and balanced view of high frequency trading but in reality is just a industry-lobby group which will fight tooth and nail to prevent any changes in regulation to the cushy two-tiered market gambling structure that has developed courtesy of a bunch of math Ph.D. and astrophysicists determining just what market momentum is (or isn't as May 6 so amply demonstrated). In advance of this "panel", the NY Observer's Max Abelson provides an amusing report on HFT in his piece the "High-Frequency Talker" which portrays precisely the kind of people who churn AMZN billions of times of day while having no clue what it is the firm does, what its EBITDA is (or what EBITDA is period), or what its EPS prospects are. For a more serious perspective from one of the few who has consistently warned about the threats of HFT and broken market structure, we provide the following speech prepared by Senator Ted Kaufman. We can only hope that someone at the SEC has at least one tenth the knowledge required to understand just how critical the Senator's warning is. We can only hope that the events of May 6 have forced the SEC to redirect their attention from online pornography for at least 24 hours.

Game theory causal relations are now superseding simple myopic "in-a-vacuum" economic variables. Are you prepared for the paradigm shift? David Einhorn is (and so are we).

This is they way I think it played out.

Some appear to believe that "confidence in the banks" can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion. But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead. In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case. Thank you. - Professor James Galbraith

Here's a partial list of ways in which we've REALLY been bailing out the behemoths.

"The Fed has not been chastened. It is bolder and more of a rogue actor than ever. It's clear that without full audit authority going forward, the Fed will continue to give out "foreign aid" without Congressional or even Executive permission.

And it will do so in secret.

So we will be fighting on to get a full audit from the conference committee.

But let's not lose sight of what we have accomplished so far - real independent inquiry into the Fed, and its incestuous relationships with Wall Street banks. For the first time ever." - Alan Grayson

Nothing to say on this really, except that Bernanke will be more than happy to oblige every and all requests which will further his goal of destroying the dollar and bring the dollar down to 1.0000 ER against its Zimbabwean brother from another mother.

Pickpockets are getting needy again ...

A 17% bonus increase in a recession year with a nationwide jobless rate of around 10%, coupled with a reduction in lending while receving TARP money - a sure fire recipe for becoming public enemy number 1.

Soon appearing on the Bernie Madoff Book to the Month club.

Don't fall for 'ye ole divide-and-conquer strategy ...

Paging, Teddy Roosevelt ...

Yesterday Goldman was saying that the quadrillions in soon to be issued Federal debt is nothing to worry about. Today the firm's rapidly self-discrediting economic team shifts its eyes to the deficit, which for the Projected 2010 is now estimated to be a blowout improvement: "$1.575bn (10.7% of GDP) from $1.64bn (11.2%) previously." Well, that's a great comfort. Oh wait, it isn't. "We have not made a formal change to our projection that the deficit will total $10.8 trillion (trn) over the next ten fiscal years given the comparatively small size of the change for FY 2010 and the considerable uncertainty inherent in the longer-term view." $11 trillion deficit. But at least somehow the national debt is nothing to worry about...While we reproduce the full note in its entirety below for those who feel like laughing, we point out Goldman's observations not only on tax receipts, but on tax receipts net of withholdings, a concept which according to some of our colleagues makes no sense. We'll be sure to let Jan Hatzius know asap. "Personal income tax revenues appear to be on the verge of noticeable improvement.  Over the first six months of the fiscal year, personal income tax receipts net of refunds are actually down significantly – 8.4% versus our assumption of nearly a 10% decline.  Reflecting last year’s sharp drop in personal income, final tax settlements on 2009 returns are running about 11% below year-earlier levels, and refunds (as reported in the Daily Treasury Statement) have been up about 5%.  However, withholdings of personal income taxes have improved noticeably in the past two months. [uhm, March yes, April no. see here] While some of this is due to calendar effects (March 2010 had one more business day than March 2009), the underlying trend appears to have moved from deeply negative through January to mildly positive since then [again, no - true for March, false for April].  As the economic recovery continues, we project that this trend will remain positive – between +5% and +10% – over the balance of the fiscal year.  This assumption adds $56bn to our estimate for personal income tax receipts, trimming the expected year-to-year setback by nearly two-thirds, to about 3.5%." Ah yes, and just as UBS wishes 2011 will be the new "new revenue story" so do 10 million drunk Irishmen see a pot of gold at the end of the rainbow. Goldman - meet Unicorn ranch.