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

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
helping_friendly_book's picture


Why aren't we indicting these thugs?????

This gov't is so disappointing.

So weak.

Where are the gun nuts?

You have the guns!

You have the ammo!

You have indignation!

Where are the patriots?

All fucking talk while Wall Street retires to Monaco?

The Greeks make the USA look like, complete, pussys.

At least they set a few on fire.


MeelionDollerBogus's picture

WE? Vhere eez yoor badge, comrade? No, none?

Vhat eez zees?

Nussing to see here, comrade, move along

tony bonn's picture

zh has re-earned its uber pulitzer prize worthy credentials!!!

kennard's picture

 My post from November 21, 2008:

"Remember when Bush called a meeting on the meltdown before the election and invited McCain and Obama? On his way to the meeting, an Obama advisor got a call from a “Goldman contact” disclosing Paulson’s game plan, which Obama then used to throw in everyone’s face and toss the meeting into turmoil. My bet is that Geithner was the originator of the leak and that this, among other things, established his bona fides with the Kennedy Wing of the Democrats (aka “Obama”). Therefore he gets elevated to Treasury Secretary. Geithner has always been doing someone elses bidding. That’s his MO."

kennard's picture

If the Fed got out of the business of intervening in the markets to effect "monetary policy", there would be no possibility of breach of trust by Fed officials. So long as they intervene, boys will be boys, Geithner or no Geithner.  /von Mises

UGrev's picture

Handcuffs? *chirp* *chirp* *chirp*.. 

Ok.. so, if mr. fancy pants doesn't have to obey the law, then I guess I don't have to either. 

nathan1234's picture

Timmy is part of the crooked administration.

Does one think he would do and say any such thing unless he knew he would go scot free?

The SEC, CFTC et al are representative of the criminal behaviour of the Government.

Having killer lists, using drones - is that what any responsible Government would do?

Finally just like the Germans were responsible for Hitlers crimes, Americans will be judged likewise.




therearetoomanyidiots's picture

I wonder who is the fucking moron with the down vote.  

caerus's picture

who do you know that doesn't own apple? it's done...gaps will be filled

Sisyphus's picture

Thanks ZH!

Having said that, is it just me, but nobody has thanked Manal. Both posts were hat-tipped to him.

So, thanks Manal!

caerus's picture

all stocks die..aapl is dying...eventually there will be a new stock and that will die too

PUD's picture

So, instead of lamenting or there a way that we can join forces and bring suit?  Can zero hedge rally all these tens of thousands of angry readers and marshall their resources (legal and financial) to bring a public case against this man?

If not then all these words are in vain, this site is just a bitch forum and nothing what so ever will change

I will be the first to volunteer my time to do whatever is needed


overmedicatedundersexed's picture

PUD, I [not a lawyer], can see a public trial on youtube, by citizens such as we on zh, laying out the facts of which are public, corzine, mazillo, timmy, going back to 2008 at least, the use of pols such as b frank, dodd, the fanny and freddy twins, kanjorski's some entity withdrew 500 billion in one move in fall of 08..we could do this and if TD wanted ZH COULD BE THE PLATFORM..

PUD's picture

I was thinking more of a fund set up through zero hedge to hire a legal team and bring a case on behalf of all. Anyone listening? 

overmedicatedundersexed's picture

pud, kinda like trying to get basic backround info on the barry, obuma, suerto,aka potus... and the courts all nix with you do not have proper standing in this case mr voter or mr candidate for pres, that is what you will get..much cheaper to do a show trial on the crimes of the century, live on u tube, with judges and such. ZH fails in one aspect, it provides sun light on dark hidden finance, but the public needs a show. with a verdict and with plenty of high drama.

Mr. Hudson's picture

A trial on youtube? Who would be the jury? 12 rabbis?

falak pema's picture

monty python as the spanish inquisition. Bring out the racks!

PUD's picture

What's the point other than to shame him? He needs to be held to account and punished. Enough people band together to bring a real suit would do that. We could organize protests until such a trial was held...come on...let's be creative here and not defeatist...surely there is a way with some thousands of zh readers

Mr. Hudson's picture

Lawyers are crooks. You set up a fund to go after Geithner and the lawyers would take all the money.

helping_friendly_book's picture

Even if Timmy told Ken Lay there is no evidence traded on the information.

Having, or disclosing, inside information is not a crime. Trade on the information is the crime.

IMA5U's picture

so basically as soon as geithner stepped down he is getting thrown under the bus



nice administration

overmedicatedundersexed's picture

what liability does the FED have for crimes taken by it's employees, BP was held accountable as a company for the gulf oil spill. turbo tim, is not the best target. the supreme court has favored lawyers who start cases suggested by the court ..this tells you that no cases have been brought against any public office holder or .gov agency. it is clear the supreme court here in usa is with the elite reptiles ..eyes wide shut.

I see only the various states that have people not fully controlled by elite nyc/dc/nwo..reptiles as the only option as all of fed .gov is locked down. at some point we can only hope a state govenor or ag will step up.

Anasteus's picture

Shocking... thank you Tyler for the investigation.

rwe2late's picture

 A relatively minor crime, among the many major ones,

of the previous administration,

which Obama has effectively pardoned (looking ahead, not back),

doubtless in anticipation of continuing those crimes and more

during his own administration.

zdk45's picture

"A relatively minor crime" 

Perhaps, however, I'd be interested to hear what constitutes major crime/fraud.

Because if information was released ahead of time, and that information was acted upon causing gains/losses, then it becomes an order of magnitude.

We are talking about the largest trading days of the entire decade, orders of magnitude greater than 

the days surrounding 9/11, in the midst of the greatest financial collapse in history.

Some might argue this is about more than just the few billions/trillions gained/lost based on fraud,

but about the foundation and integrity of the U.S. financial system.


rwe2late's picture

relative to war crimes and violations of the Bill of Rights.

gaoptimize's picture

Being invested in DXD at the time (I thought for very good reasons) I want to know if there will be any class action litigation over this.  As a private entity, the Federal Reserve can be sued, right?

jim249's picture

Buy gold and silver.

villainvomit's picture

I used to wake up and think that things could not possibly get worse........everyday I am proven wrong.  Seems like only way this can end and it will not be pretty.

GrinandBearit's picture

I remember this day painfully well.   I was short SPY that week.  I was on a business trip.  I got on the plane feeling like a champ.  I got off the plane, looked at the tv screen at the gate and felt sick to my stomach.

FU Geithner, you fucking scumbag.

Stud Duck's picture

I had the same experience with copper. I had 168,000 lbs of raw scrape, contracted to a Chinese buyer, he bailed on the contract for $4, ending up taking $2.80 3 months later, just to watch it go to $4 again, then crash  to $1.24 in  2008-09.   What a ride. I thought the cattle market in the 70s and 80s was a rough one, but never expected volatility to that degee!

You never get too old to learn a new lesson in treachery. I had "friends" in Chicago that would of gladly broke the chinamans legs but passed them all. but sure enjoyed the support from friends in low places..


moneybots's picture

"didn't Martha Stewart go to jail for just slightly less than this?"


Nobody breaks financial laws any more, according to the President.

moneybots's picture

August 16, 2007. 


Wasn't the market supposed to be a leading indicator of reccession and economic recovery, by 6 to 8 months?

The market went up into October 2007, just two months before the recession began.  The market even jumped to get to 14,000.  What other financial fraud was going on during that time to push the market up, in the face of a oncoming recession- that we still don't know about yet?

lemarche's picture


disabledvet's picture

Well...he could have said nothing. Here's what would have happened if he had "done" that:
is our preference that our leaders be completely out of touch? i mean "just ask Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs and Morgan Stanley" right? Let alone "National City Corp, Washington Mutual, Wachovia, BofA, General Electric, Countrywide" etc, etc, etc. Geithner was a Government guy...THANK GOD. If we'd listened to these private sector ass-hats and their "Repo 109 bullshit" the entire country would be dead right now. Sorry that it interupted your bear love fest of course...but we can all agree that NOT have Great Depression 2.0 is a good thing can we not? How about just having a recovery at all? I mean "just ask the Governors of all fifty States, all the County Executives and town managers, the entire Pentagon and War Staff, the last President, the next President...all of Congress"....did i miss anyone? Oh, yeah..."and the head of the CIA who sent a 'slight depression' up your way to see how you all dealt with things when the 'chips were down.'" Send money? I'm sure that didn't surprise the director. "Nothing but a bunch of people who never could pay their own way to begin with" i imagine. If anyone needs a tax on billionaires its New York City...but nooooo, "that's the Federal Government's job" hardy har har.

therearetoomanyidiots's picture

Stories like this, as well as scores of others, financial and not, because IT JUST DOESN'T MATTER.

They don't give a shit.  Chief among them this piece of shit Criminal In Chief in the White House.   The man who will take everything away from us.



Never One Roach's picture

Do Geitner and Armstrong represent our new American culture?

Downtoolong's picture

Relatively speaking, my local used car dealer suddenly seems honest.

Totentänzerlied's picture

Public response: "Who the fuck is Tom Gethner? (Goes back to Honey Boo Boo reruns)"

Tenshin Headache's picture

He'll get away with it.

Jugger Naut's picture

Those of us who manage the public's dollars will be held to account, to spend wisely, reform bad habits, and do our business in the light of day, because only then can we restore the vital trust between a people and their government.
– President Obama's First Inaugural Address, Jan. 20, 2009

1 of 7 failed promises of the 09 inauguration - Timmy should be in jail after these details came out last week and NO ones picking it up...

mt paul's picture


on debt steroids...


loop off one of his testicles 

dadichris's picture

This is criminal and so is the action taken by banks based on the information.  Indict their asses now!