The Biggest Mistake the Fed Ever Made

Phoenix Capital Research's picture


As powerful as it may be, the Fed is not the market. And since the Fed failed to restore trust in the system by forcing all bad debts to light, the financial world has grown increasingly volatile and broken as investors grow increasingly distrustful of the system and begin to pull their money from it: see market volumes continuing to plunge.


Nowhere is the lack of trust more apparent than in the financial sector. Indeed, it was a lack of trust between banks (inter-bank lending) that caused the credit markets to jam up in 2008, which resulted in the Crash.


That lack of trust continues to this day. In the post-Lehman collapse, instead of forcing real derivative and credit risk out into the open, the Federal Reserve and regulators instead suspended accounting standards and allowed financial firms (and other corporate entities) to continue to lie about the true state of their balance sheets.


As a result of this, the financial sector remains rife with fraud and impossible to accurately value (how can you value a business that is lying about its balance sheet?).


Those times in which a company was forced to value its assets at market prices have always seen said values losing 80%+ value in short order: consider Washington Mutual, which sported a book value north of $70 billion right up until it was sold for… $2 billion.


This type of fraud is endemic in the system. Indeed, we got a taste of just how problematic a lack of transparency can be with MF Global’s bankruptcy, in which a firm with $42 billion in assets lost over 80% of its value since August only to reveal in bankruptcy that it had stolen over $700 million worth of clients’ money.


That MF Global engaged in fraud and stole clients’ money is noteworthy. However, the far more important issue is:  HOW did this company receive primary dealer status from the NY Fed nine months before imploding?


The Primary Dealers are the banks that actively engage in day to day activities with the New York Fed regarding the Fed’s monetary policies. Primary Dealers also participate in US Treasury auctions.


Put another way, Primary Dealers are the most elite, well-connected financial firms in the world.  They have unequal access to both the Fed and the US Treasury Dept. In order for MF Global to have attained this status it must have passed through a review by:


  1. The New York Fed
  2. The SEC


This is not a quick nor superficial process. According to the NY Fed’s own site:


Upon submission of a formal application, a prospective primary dealer can expect at least six months of formal consideration by the New York Fed. That consideration may include, among other things, on-site reviews of front, middle, and back office operations, review of compliance programs and discussions with compliance and credit risk management staff, discussions with senior management about business plans, financial condition, and the ability to meet FRBNY’s business needs, review of financial information, and consultation with primary supervisors and regulators.


MF Global passed through all of these reviews to became a primary dealer in February 2011. A mere nine months later, the firm is in Chapter 11 and has admitted to stealing clients’ funds to maintain liquidity.


These developments reveal, beyond any doubt, that financial oversight in the US is virtually non-existent. This returns to my primary point: that trust has been lost in the system. And until it is restored, the system will remain broken.


A final note on this: the NY Fed is the single most powerful entity in charge of the Fed’s daily operations. How can any investor believe that the Fed can manage the system and restore trust when the NY Fed granted MF Global primary dealer status a mere nine months before the latter went bankrupt?


If the NY Fed cannot accurately audit a financial firm’s risks during a six month review, then there is NO WAY an ordinary investor can do so.


This is one of the biggest risks in the system: that no one has a clue what financial entities are sitting on in terms of garbage derivatives and debts. As MF Global proved, this risk can result in a TOTAL loss of funds.


This type of fraud will continue until the system breaks. At that point hopefully the bad debts will finally clear from the system and we can actually lay a foundation for growth.


We offer several FREE Special Reports to help investors navigate this risk and others in the financial system. They include:

Preparing Your Portfolio For Obama’s Economic Nightmare

How to Protect Yourself From Inflation

And last but not least…

Bullion 101: Everything You Need to Know About Investing in Gold and Silver Bullion…

You can pick up free copies of all of the above at:


Phoenix Capital Research




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tony bonn's picture

the only failure of this article was that of speaking the real truth - namely that john corzine collaborated with the new york fed to destroy mf was no accident....corzine is a criminal of the first rank who is a valuable thug in the bush crime syndicate and rockefeller axis of evil....

ebworthen's picture


Complete collapse is the only way to get the rats and cockroaches out into the light so they can be squashed.

MrBoompi's picture

The President, his entire executive branch, and Congress do nothing about it too.  What a bunch of losers.

rsnoble's picture

Does it really matter who's sitting on 1 quadrillion in derivatives? When that goes the whole world's going with it.

rlouis's picture

Who needs collateral when you have unlimited leverage to control markets through derivatives?  /sarc off   

Gold Dog's picture

Who do I bribe to get Primary Dealer Status for my dog?

SAT 800's picture

I think the whole blah blah about the spproval process is BS. It's an old boys club. Somebody should have checked Corzine's history; he got canned at Goldman Sachs for following Russian Bonds down, (buy more as they declined); as soon as he got control of MF Global he started doing exactly the same thing doubling down on buying failing Euro Pig bonds; he's an idiot who was given a golden parachute by Goldman to go away; because they didn't want any damage to their reputation; (if he blabbed they would have looked like idiots; they lost big time on the Russian Bonds, which of course defaulted).

marathonman's picture

The whole system is built on fraud - fractional reserve banking.  More and more people finally see that the whole system from the central bank, to the TBTF banks, to government, to media is something akin to a worldwide version of 'The Truman Show' where we are in this bubble world that is completely artificial, controlled, and manipulated.  I'm going Truman and getting out of the bubble.

Augustus's picture

This article drives home the point that it is not possible for any depositor to evaluate the soundness of a bank.  Who can know if the loans are sound and over collateralized when listed on the Balance Sheet as Loans and then adjusted for Reserves against losses?  Followed with minimal information about Marketable Securities.  This is the real porblem of dealing with the bank problems using the Let Them Go Broke method.  Now, we do have various state and federal auditing teams that supposedly provide assurances.  Well, those people with full access cannot know either.  MFG may have been fine when approved, even if it was because of connections.  The assets can change so fast that nobody can keep up with it, let alone the poor depositor. 

Make it easier for the banks by allowing them to hold securities with secret market values that they can write up or down at will.  Now they can get anything they want for a valuation of assets.

digitlman's picture

"As powerful as it may be, the Fed is not the market."


Oh, sorry, you are disqualified right off the bat.  Thanks for playing.

dark pools of soros's picture

What does market volume have to do with whether investors have their money in it or not?? can't they be long too? Is only the fed and institutions holding any stocks for more than 5 mins?

I guess I answered my question

SafelyGraze's picture

"Nowhere is the lack of trust more apparent than in the financial sector. Indeed, it was a lack of trust between banks that resulted in the Crash."

Very well put!

We at the NYFed have been thinking about how to remedy this, and we'd like to let you know what we've come up with.

Basically, the problem is that there are too many people who lack trust in the financial sector in general (and the NYFed in particular).

We are partnering with our Trust and Confidence liaisons within various Agencies and Departments as part of the attorney general's new interpretation of the NDAA. 

Although this new interpretation is not available for you to read, we are pleased to report that it will Drastically Reduce the Number of American Citizens Who Do Not Trust the Financial System.

In fact, we expect that with the help of our liaisons in the executive branch, distrust and lack of confidence will be utterly eliminated in the very near future.