Presenting The S&P500's 50 Point Surge Courtesy Of The Illegal "Geithner Leak"

Tyler Durden's picture

Yesterday we broke the news of what is prima facie evidence, sourced by none other than the Federal Reserve's official August 16, 2007 conference call transcript, that then-NY Fed president and FOMC Vice Chairman Tim Geithner leaked material, non-public, and very much market moving information (the "Geithner Leak") to at least one banker, in this case then Bank of America CEO Ken Leiws, in advance of a formal Fed announcement - an act explicitly prohibited by virtually every capital markets law (and reading thereof). It was refreshing to see that at least several other mainstream outlets, including Reuters, The Hill and the NYT, carried this story which is far more significant than Season 1 of Lance Armstrong's produced theatrical confession and rating bonanza. It is notable that Richmond Fed's Jeff Lacker who made the inadvertent (or very much advertent) disclosure has not backed down from his prior allegation and told the NYT yesterday that "My understanding was that President Geithner had discussed a reduction in the discount rate with these banks in connection with these initiatives." What, however, the mainstream media has not touched upon, yet, is just how profound the market response to the Geithner Leak was, and by implication, how much money those who were aware of what the Fed was about to do made. Perhaps, it should because as we show below, the implications were staggering. But perhaps what is even more relevant, is why the Fed's previously disclosed details of Mr. Geithner's daily actions at the time, have exactly no mention of any of this.


Before we get into the prime of today's narrative, a quick detour.

For those who may not remember, early August 2007 was a very tumultuous time in the markets. On one hand, it marked the all time highs of the S&P. On the other, August is when the cracks in the facade started to become apparent to all, even the Fed, following what is now known as the quant meltdown, in which quantitative strategies suddenly stopped working and led to a brief but notable market crash, one which caught the Fed's attention.

The immediate result of this major market swoon was not one, but two ad hoc FOMC conference calls, the first on August 10, and the second on August 16. The first one was more of a brainstorming session held at 8:45 am on Friday, in advance of a 9:15 generic market supporting statement by the Fed (full text here), whose purpose was, in the words of Chairman Bernanke, that "we’re just saying that we are here, we are going to try to maintain the fed funds rate at 5¼ percent, we will provide adequate reserves, and we’re going to try to work against any remaining stigma associated with borrowing at the discount window."

What is important about the first call is where Bernanke left it, namely with a direct preview of what was about to come next. To wit:

There is just one procedural point. Again, this is not something that we’re contemplating, but one possible thing we could do would be to lower the discount rate, reduce the 100 basis point spread between the discount rate and the federal funds rate. It’s not obvious that it is the right thing to do. There are probably some technical and logistical issues concerned with it. It’s not obvious that it would be helpful. But I just want to put it on a list of things that we might consider and to remind you that the procedure for doing it would involve requests from your boards and then approval by the Board of Governors. So should we come to that point and we begin to discuss that particular option, we would need the Presidents to get the assent of their boards so that we could go ahead and take that action. Are there any other comments or questions? All right. Well, we will keep you well apprised, and I’m sure you will be following the markets on your own.

That point came a few days later, when the disturbance in the markets continued and when the Fed felt compelled to hold yet another conference call not a week later, in which the Bernanke proposal to cut the discount rate spread to the fed funds rate was enacted, and the margin was cut in half from 100 bps to 50 bps.

The formal announcement of the decision to do this took place at 8:00 am on August 17 and was worded as follows:

To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility. The Board approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent, to narrow the spread between the primary credit rate and the Federal Open Market Committee's target federal funds rate to 50 basis points. The Board is also announcing a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower. These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco.

The statement was the result of the previous day's (August 16, 2007) conference call deliberations which took place at 6:00 pm Eastern. And while the 37 page transcript provide much color in terms of the Fed's misreading of what was happening in the markets (in this case several computers going haywire, a faux pas that would only be matched by the January 21 2008 unprecedented and unscheduled 75 bps cut in response to Jerome Kerviel's overnight futures trading fiasco, what is particularly relevant to this story is a statement by then Fed governor Donald Kohn who said...

After this meeting is over, the Board will likely vote on two requests that we have in house to reduce the primary credit rate to 5¾ percent. We would announce this at 8:00 tomorrow morning, along with whatever statement the Committee approves, and we would expect and hope that if this goes forward as we anticipate, the other ten Reserve Banks would go to their boards after the announcement to come on board for the 5¾ percent primary rate so that we reduce any risk of leaks ahead of time.

... as well as a statement by none other than Tim Geithner who explained how the banks and other "market participant" institutions are acting and thinking at this troubled time, as follows:

...Although they had lots of clarification about what is permitted now under current policies at the discount window, they obviously don’t have any idea that we’re contemplating a change in policy or what might be possible and what we might say or not say going forward. They obviously can’t and understand that they can’t say anything about us...

What these two extracts confirm is that it was expected and well-known, after all it was "obvious", that the banks can not have advance knowledge of what the Fed would announce in just 12 short hours. Yet it is the latter that is of particular attention, and we are certain the Department of Justice and the SEC, are clearly ahead of us here, because it comes from none other than the person who it now is clear was the source of the leak.

The Geithner Leak

Those who happened to have the misfortune of trading stocks on August 16, 2007, and especially those who were short the stock market just because they saw the writing on the wall - writing that would crush the S&P to 666 in one and a half short years and lead to the failure or consolidation of half of America's banking system - remember that day very well. What happened on August 15, and continued through the 16th was an aggressive bout of selling, that took the S&P from 1390 to 1360 at the close of the prior day trading day, and subsequently sent it lower by another 30 points to 1330 at just about 2 pm Eastern. What happened next would have otherwise remained a mystery, if not for yesterday's declassification of the Fed's 2007 transcripts. Because suddenly, out of nowhere, an unprecedented bout of buying started with no news to serve as a catalyst. The buying sent the S&P soaring by some 50 points (!) in the span of an hour.

Once again - there was no market-moving news to explain this move. At least no publicly disclosed market-moving news.

Now we know whose job it was to unleash the buying spree at precisely 2:00 pm on that Thursday. His name: Timothy Franz Geithner.

And we know this because Jeffrey Lacker knows this. From the August 16 transcript:

MR. LACKER. Vice Chairman Geithner, did you say that [the banks] are unaware of what we’re considering or what we might be doing with the discount rate?




MR. LACKER. Vice Chairman Geithner, I spoke with Ken Lewis, President and CEO of Bank of America, this afternoon, and he said that he appreciated what Tim Geithner was arranging by way of changes in the discount facility. So my information is different from that.

This exchange took place some time after 6:00 pm on Thursday, and some time after the 50 points ES ramp had taken place "out of nowhere." In other words, not only did the leak that many FOMC members (including, humorously, Tim Geithner) were concerned about take place, but it was none other than the Geithner Leak to at least Ken Lewis, and who knows how many other bank CEOs, which we also now know made the rounds among those bank trading desks who were privy to its confidential and illegal market moving content at just after 2:00 pm on that day.

For those who need a visual reminder of just what happened on August 16 2007, here it is:

Many shorts ended up being carted out of the front door that day, unsure what has just happened. Sure enough, the next day at 8:00 am the Fed did what it had decided the previously it would do, and announce the 50 bps cut to the discount rate to fed funds rate spread. The market response was just as blistering as the rest of the market piggy backed:

To summarize what happened for all those who were too stunned from the day's rapid events, the S&P futures moved from a low of 1320 (and 1330 at the 2:00 pm moment that the market saw a mysterious "invisible hand" pushing it higher), all the way to well over 1410 the next day: an unprecedented 90 ES point move in a few hours! The reason: the Fed's market moving announcement, as well as the Geithner Leak at just around lunch time on August 16th.

The Fed's Records

We now know what the illegal catalyst was for the massive market surge on the afternoon of August 16: Tim Geithner leaking what the Fed was about to do to the rest of his banker colleagues: a leak that breaches every possible law and rule.

So in an attempt to cement this fact with concrete official evidence, we went to the source: the New York Fed's own calendar of what Tim Geithner was supposedly doing on August 16th.

We have access to this thanks to an April 2009 FOIA request by the New York Time's Gretchen Morgensen. What the FOIA revealed to the NYT and the world, was 658 pages of daily events that Tim Geithner was engaged in, in the period from 2007 to 2009. Supposedly, this was a complete list of his daily events, and phone calls.

What the daily schedules show is that between August 8 and August 20, 2007 Tim Geithner was supposed to go on vacation to Cape Cod, from where he participated telephonically on at least the August 10 conference call.

It appears that Geithner ended his vacation prematurely, and was back in the office at 33 Liberty on August 13:

We fast forwarded to that fateful day - August 16 - when Tim was holding all these phone calls with Ken Lewis, and who knows who else, to see what, according to the Fed's official records, Tim Geithner was doing. We find...

... nothing! Actually no, we learn that at 5:30 am Geithner spoke on the telephone to then-BOJ Governor Toshihiko Fukui. And that was the only direct telephonic conversation Geithner had that day, at least according to the Fed's own internal records.

Between the 8:30 am "teleconference with Board of Governors" and the 4:00 pm "Markets Status Meeting", Tim Geithner apparently did exactly nothing. We now know that is not the case, as we know that he spoke to at least one Ken Lewis in the day(s) before the August 17th announcement. We certainly don't know who else he spoke to, to leak material, non-public and market moving information.

Perhaps it is time for a stronger FOIA request, maybe this time from someone like Bloomberg. Because we are 100% certain that if Bloomberg's Mark Pittman was still alive he would be all over this. We are confident at least one reporter at the Bloomberg newsroom is willing to carry on the Pittman legacy and find out why the New York Fed has no official records of what is arguably the most important time block of Tim Franz Geithner's daily calendar: his daily leaks of material Fed information to Bank CEOs.

Or perhaps this particular conversation was on Geithner's cell phone. Maybe it is time not for Bloomberg, but for the DOJ to step in and request Mr. Geithner's cell phone record: who knows - one just may find undisclosed conversations between the soon to be former Treasury Secretary and CEOs such as Ken Lewis, Lloyd Blankfein, Jamie Dimon, and all those others who it appears were worthy of knowing what the Fed would do almost one full day ahead of everyone else, and as a result make billions in illegal profits as a result of frontrunning the announcement of the world's most important central bank?

And perhaps it is time for all those who were short the market on the afternoon of August 16 to form a group and actually sue the Federal Reserve for not only breaching its responsibility to the US taxpayers, but for illegally enriching bank CEOs even more than it has to date?

* * *

Maybe there is a reason why the Fed has a 5 year delay in disclosing full transcripts. Because something tells us the statute of limitations on pursuing Fed inside information disclosure charges against the soon to be ex-Treasury Secretary will have just expired.

Of course, when the Fed's attempts to delay the inevitable convergence between stock markets and reality finally fails with a collapse that makes the August 2007 market moves seem like a joke, we are quite confident that the statue of limitations on that other form of justice, vigilante, will be the last thing the general public which has been betrayed by the Fed over and over and over, whose sole purpose is solely to make the rich even richer, will be the last thing on anyone's mind.

h/t Manal

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Cathartes Aura's picture

yes!  well spotted.

from your link, Granfalloon Technique:

Researchers since Tajfel have made strides into unraveling the mystery behind this phenomenon. Today it is broken down into two basic psychological processes, one cognitive and one motivational. First, knowing that one is a part of this group is used to make sense of the world. When one associates with a particular group, those in the group focus on the similarities between the members. This is different from people not in the group. For "outsiders" differences are focused upon and often exaggerated. A problem with the granfalloon is that it often leads to in-group, out-group bias.

which is the noose - making sense of a world that is so obviously non-sense!

there's the insanity, and now we watch the great unraveling.

I have a great fondness for many of the works that came from the 60's - be it authors, or films, or music - not all, but some - they were part of a revolution against the current culture, and some of the perspectives of the time still hold very true.

knukles's picture

The Economist is one of the Leading Lights on an incredibly "intellectual level" of the NWO agenda machine.


hooligan2009's picture

the economist is a left wing comic...with about as much editorial credibilty as dog turd on a tramps shoe

GoodMorningMr.VanRumpoy...'s picture

The Economist group is owned by the Rothschilds. The female Redshield sits on the board and the magazine was directly edited by Lord Rothschild himself in the 1980's.

It's a globalist publication. Pro-world government Pro-NWO. Incidentally the Economist Group also owns the Financial Times, "FT".

hooligan2009's picture

exactly...the FT is not called "the pink pages" for nothing.

you only get apolitical commentary if you can "sense" the ring of truth in blogs like this one.. all broadsheets are so "Pravda".

jonjon831983's picture

What? God damn, they prevented it from dropping lower?  Prevented those interested from a potentially better buying opportunity?

Either this Ken Lewis is a shit disturber or didn't get the memo from Timaahhh!!!!


And what happened to this FOIA Bloomberg's Mark Pittman???

Miles Kendig's picture

Managing expectations in an age of perfect information shows itself for what it is in practice.

ISEEIT's picture

Faces of evil.

Seriously..This 'guy' would literally rip a fetus from the womb and consume it. He, and barack satan himself are known by the deceit. Lying is their only power and they abuse it prolifically. They must lie and deceive because that is the only means available for them to dominate contrary to your nature.


Peterus's picture

Duh! You have to pass the weighted dice at some point.
Tim seems to do it old school - directly and on highest level. This casino has a reputation and history, some last second switcheroo by a croupier just wouldn't do. Mister chariman lays the dice by his own hand into mister CEO's palm.

knukles's picture





(The banks who own the Fed...etc...)

This message was brought to you by Hindenburg Catheters.  "Where a little feels like a lot"

GNWT's picture

I was short the NQ against the ES that day, don't even remember what happened just a blur.


When the first wave hit half my stops closed out and watched with amazement.


Finally, a smoking gun.


So now we know how they do it, and I have seen similar back to 92.


Geithner belongs behind bars with Corzine.



Stay liquid my friends...

q99x2's picture

It is crimminally legal for them to do that so why wouldn't they. As long as Holder is in the house they can do whatever they choose to do. It is not like this is America anymore.

Max Keiser has a nice report with Doug Casey from Argentina HERE

Zer0head's picture

holy fck Saturday on a long weekend and this pathetic bit of reporting by David Muir of ABC -

just watched ABC World News - opening story Algeria

the good news is that 100 workers escaped, one Amercan is confirmed dead and some  others are missing. Over to you dickhead at the Naval hospital in Sicily - yes David, we are here at the Naval base with survivors who described how they escaped by baracading themselves in rooms, some survivors will be meetng with counselors to try and makes sense of their ordeal and others are getting ready to return home, back to you David, thanks dickhead. And Bob Dudley CEO of BP expressed his dismay over this incident,  and with that our coverage of the hostage situation is now over. 

In Brazil there was a horrific scene of a gunman attempting to shoot some politician...



(All I can say is thank goodness this hostage drama is over, can you imagine if it was still going on what with all of the festivities planned for Monday's inauguration)


max2205's picture

BP, again.....evil or tool?

knukles's picture


For some reason that is particularly funny right now.

world_debt_slave's picture

100 years of shearing the sheep coming to an end.

MeelionDollerBogus's picture

They're putting down the shears & getting out the mint sauce.

Are you sure you want to start cheering?

Tim Knight from Slope of Hope's picture

Tyler SHOULD get a Pulitzer, but I guess we need to reserve that kind of honor for the Krugmans of the world.

ziggy59's picture

Theres always the Dynamite Man Award...

Peacegivers like Oh..
And the EU...

Gimmes a friggin break...

ziggy59's picture

Anyone else getting really sick and tired of the golden showers administered to the public on an almost daily basis from these sociopathic psychopaths?

logicalman's picture

Don't those teeth just beg for the application of a fist?

holdbuysell's picture


holdbuysell's picture

If you have any account at any of the TBTF, seriously consider making the effort to move to a community bank or credit union. Keep the money in your community. Let your neighbor earn the profit.

The added bonus is this is money that JPM, et al can't gamble with in their CIO (as ZH has shown and that likely all the TBTF do).

luna_man's picture



"statute of limitations"...


Can not, I repeat, Can not, apply to these CRIMINALS!


It's a given!...None other than MY MAIN MAN!! 


Tsar Pointless's picture

In other news, there is the beginning of the shortened NHL season and the NFL Conference Championship games this weekend to keep the attentions of the little children disguised as adults diverted.

Not that they need a reason.

Isn't it great that we're ruled by a bunch of idiots who can tell you the second-string quarterback of their local NFL team, yet can't name a single person that represents them in any local political capacity?

This is the dreaded "dictatorship of the proletariat", I presume.

TheFourthStooge-ing's picture


Isn't it great that we're ruled by a bunch of idiots who can tell you the second-string quarterback of their local NFL team, yet can't name a single person that represents them in any local political capacity?

My 2013 Stupor Bowl prediction: Houston Oilers over the Baltimore Colts, in overtime.

q99x2's picture

Nothing worse than a photo of a rat saying, "Cheeze."

Lmo Mutton's picture

Dropping the "Z" bomb on MSM




reader2010's picture

As long as Joe Sixpacks still get their EBT cards honored, they don't give a shit. The Empire is lost from within. 

bugs_'s picture

stay on this one tyler - i see an Obama pardon in the cards for Geithner and the Banksters he told!

El's picture

Yep. You called it. The statute of limitations for conspiracy is five years.

Sambo's picture

If after 100 years, the most corrupt nexus in the history of America - the Fed, the Govt & Wall St - continues to operate, it only means that the American public has no spine. Spineless sheeple.....they desrve what they get!

bunnyswanson's picture Election day, 1960.

If the swindlers, crooks, liars and thieves allowed a president to come forward which would give Americans their country back, they'd do what they did before numerous times.  Until you get AIPAC OUT OF POLICTICS, there is nothing that can be done. 

Criticizing AIPAC is political suicide.  Ron Paul would like to know why.  I will tell you why -- because the Israeli lobby group have a goal and that is to make the USA it's bitch..well, there you have it, mission accomplished.

ekm's picture

Nothing's gonna happen, nada, nicht, zilch, niente.

Nothing happened to Hank Paulson for his leak to hedge funds.


Move on. Just go and cheer up for the anointing of the emperor over the weekend.


You americans voted for him. So, enjoy the food stamps.

Michelle's picture

Not ALL Americans voted for him, just those on the dole or wanting to be.

ekm's picture

That is democracy and your numbers are incorrect.

About 50% of voters voted for him, but only 50% of voters voted. Hence my math says that 75% of voters either voted for him or do not oppose what he does. Only 25% of voters oppose what he does. That's a super clear majority.


An ambasador dies in Benghazi, not only nobody knows yet, but nobody cares. Americans die in Algeria. For the press it is almost irrelevant.


Nobody cares any longer about anything as long as the handouts continue. I guess what's important is the football playoffs tomorrow.

MeelionDollerBogus's picture

There is no -1 or downvote or "oppose" vote in this "democracy" or 75% would have easily come out to vote that OBama CAN'T be President.

I wish it was a "vote NO" system instead of vote "yes" system.

helping_friendly_book's picture


I have a job. savings. investments....etc.

I voted against the secret underwear cult, creep, polygamist.

100 Obama is better than 1/1000 romney.

What are you thinking?

You fucking people talk, talk , talk.......PM, guns and ammo.......all you can do is shoot children, movie goers, and Travon i.e. young, unarmed, black children.

take your pm and stick it. it will be no benefit to you.

Hey Michelle! You think you can do a better job?

You are free to run in 2016.


Peterus's picture

"You fucking people talk, talk , talk"

What is wrong with communication?

"all you can do is shoot children, movie goers"

As well I could say that is all you can do - and somehow lump mad guys that were in withdrawal of some psychotic (lagal) drug with your group. Obama is in the pocket of big pharma (look at Obamacare) so there - here is your connection. Anyone voting Obama is in fact supporting mass shootings?

"and Travon i.e. young, unarmed, black children"

That kick the shit out of a guy, see he's got a gun and say "now you're going to die"... BTW have you seen recent Travon picture or one from a few years before?

"Hey Michelle! You think you can do a better job?"

Ofcourse she would do much better job. It's not that Obama is incompetent, he's just bought and paid for and people he work for have interests that go against ordinary citizens.

"You are free to run in 2016."

No. Until the crash, it will be a repub or dem that will be the prez. You can't seriously call it running in elections when there is no chance to even be taken seriously and little chance to be just heard by your audience. It should read "You are free to make a farce of running in 2016".

Blankenstein's picture

Obama has shown that he backs the banking cartel 1000%.  Where are all the convictions of the high-ranking Wall Street mafia who almost brought down the banking system?  Oh that's right, they were bailed out with taxpayer money and then proceeded to give themselves record bonuses.  Where is the transparency in the government allowing the taxpayers to see exactly when bailout discussions began and all the information and parties involved in the decision making process?  Oh that's right, we get a puny scrap five years after the fact.  If he was for main street instead of Wall Street, why did he choose a Goldman Sachs-connected lawyer for his Attorney General?  .........

bunnyswanson's picture

The UI receipients undoubtedly voted for OBeyme out of desperation but the welfare recipients don't pay attention to politics. They blindly go where they are told because they haven't the ability to consider the information available to them (too complex).

There ~was~ a large percentage of upper middle class who stood by this president, prior to the tax hike - you'll find them on Huffpo, flagellating themselves for having done so.  This dismantling of America occurs in segments, the best for last (the-rich-but-not-rich-enough) - in the form of more tax hikes, I believe.  Segmentally done so that he'd win this election most probably.

toomanyfakeconservatives's picture

Insider trading jail sentences are for little people like Martha Strewart... not mega criminals like Timmy.

Milton Waddams's picture

Anyone that has had the unfortune circumstance of reading the Federal Reserve transcripts in totality knows that the 'Geithner Leak' is a drop in the bucket.

wisefool's picture

I talked a farmer about what he needed to do to bring 40 acres back to production. ground was left fallow for a year. So every weed, especially the invasive ones, had rewilded the plot. baby trees. johnson grass, etc.

He said he used pesticide ________ (I can't remember the name). 2oz. I asked him 2oz. per acre? he said no. 2 oz. for the whole forty. (diluted of course)

True story. The AG folks here could probably back me up with an actual name of the agent.

Stud Duck's picture

2 oz of high concentrate Roundup mixed with 80 gal of water and a sticker agent should get a good kill on 40 acres.

Just a FYI

tok1's picture

One simple thing that should be done ( which floor trading use to allow)
Is all trades ( futures/ cash ) should show on the time of sales
who bought and sold for every trade ( Singapore does this).

So when market has sudden move everyone can look and see which broker brought ( and the underlying account). Ie so if goldmans buys via a second broker we can see that's it's broker x on behalf of Goldman and then even the underlying client ( ie it's open free maket no one should hiding) if BOA buying in large size lets see it ( then if get this situation )
relevant people at FED should be obligated to check ( ie why big buyer a ahead of announcement )

Ie either it's free market or it's not . If someone wants a big position fine ( lets see) that would make people cautious about excessive exposure .

The problem is the exchange is letting them hide ( ie big buyer who is it no one knows) that's not free market .. If their big men lets see them like floor days when you saw the big.guys put on the position ..

resurger's picture

after reading this i just feel i wanna stomp this fucking kyke with my Timberlands...

It has always been the case, to enrich themselves and no one else.

when will the circle circulate on those fuckers? God if you are there answer our prayers..

+5 ZH