Window Dressing On, Window Dressing Off... Amounting To $140 Billion In Two Days

Tyler Durden's picture

On December 31 we demonstrated the biggest operation in the history of the Fed's temporary open market operations: a $198 billion reverse repo under its brand new fixed-rate scheme, which, at least according to the Fed, was supposed to be a mechanism designed to prepare the market for the "normalization" of the Fed's balance sheet and allow seamless liquidity extraction. What the Fed did not announce was that it was also the biggest collateral window-dressing scheme ever conceived (that there was $200 billion in free liquidity sloshing around was a distant second highlight).

What we said then was that "We will leave it up to readers to decide what is more surreal: that the Fed is allowing banks to "window dress" to the tune of several times more than total Treasury holdings owned by the Primary Dealers as disclosed by the Fed, or that there is an unprecedented $200 billion in free liquidity floating out there."

Well, if what happened in the last days of 2013 was indeed merely reverse repo-assisted window dressing, then we would expect the that first days of 2014 should see a comparable collapse in the magnitude of the Fed's reverse repo operations. Sure enough, as the chart below shows, this is precisely what has happened following today's far more modest $56.7 billion reverse repo operation conducted among 50 bidding counterparties and the Fed, of course.

In short: collateral window dressing on; collateral window dressing off, all with the blessing of the banks' overarching regulator, the Federal Reserve. What is most disturbing is that both the world's largest financial firms, and by implication the Fed, just admitted there is a massive collateral shortage currently if banks are forced to pad their books to the tune of nearly $200 billion in "high quality collateral" just to pass year-end auditor muster.

And a tangent: in the past two days, the Fed has first withdrawn and subsequently re-injected a record $140 billion in liquidity, or nearly two months' worth of post-taper POMO. One may be tempted to wonder just where it is that these hundreds of billions in fungible electronic monetary equivalents have ended up...

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HedgeAccordingly's picture

will have to admit.. these first two sessions of 2014 have been polar opposite of expecations.... all without the pariticpation of a rotation into bonds.. all 100% equity related rooted in Japan and Japan has been closed!. monday going to be loose - 

Cult_of_Reason's picture

Re: ...where it is that these hundreds of billions in fungible electronic monetary equivalents have ended up...

Does anyone still have any doubt it ended up in propping up stock market momo bubbles?



Japan has been closed, but futures are down.

VD's picture

corrections: 1. 'all with the blessing of the banks' overarching regulator, the Federal Reserve' = all with the blessings of the Fed's overarching regulators, the BANKZ.

2. 'brand new fixed-rate scheme' = brand new fixed-RAT scheme

pashley1411's picture

Digital fire-hose.   

We are going to be using sea shells before all this is over.

kchrisc's picture

"Sea shells"?!

They'd raid and imprison everyone involved. Just like Liberty Coin.

"Still looking for the Constitutional authority for the FedRes. I found gold and silver, but green certificates..."

Unknown Poster's picture

"Safe" is only for the reported balance sheets.

Al Huxley's picture

I was reading some of Niall Ferguson's latest and according to him we should all be grateful to the FED and the banks for the massive wealth transfer they're perpetrating, as we have no appreciation of how much worse things would be if the TBTFs were allowed to fail.  So the next time you're worrying about how you're going to make next month's mortgage payment, or if you're job's still going to be here next year, take a moment to count your blessings and thank the benevolent folks at GS, JPM and the Fed for all they've done for you, especially since 2008.  It may seem unfair that they're becoming unspeakably rich while the nation as a whole collapses, but apparently its for our own good - trust them.

ChaosEquilibrium's picture

Niall and I will eventually have a drink together and I can thank him for supporting such graceful, altruistic, free-market and benevolent actions upon our behalf....then I will drink his blood and eat his heart...and I'm a vegetarian!:)


DISCLAIMER: No! I will not and do not eat humans......well for the time being of course!

asteroids's picture

The politicians had a choice to make, either bankers fail, or.... print up billions that the muppets have to pay. We know what the choice, now the muppets, for the next few generations, will dearly pay. The next crash will make things much much worse.

max2205's picture

Normally a bearish sign...however do the oposite

illmatic's picture

With margin debt and leverage at record levels, window dressing like this is absolutely necessary for the market to avoid going 'full-retard' as zh is fond of saying. Completely illegitimate but the Fed has painted itself into a corner. Dallas Fed's Fisher and Philly Fed's Plosser have both signaled their fear that the Fed may have painted itself into a corner. Yellen on the other hand is delusional...

Ham-bone's picture

that's always the question I have - are we "here" because the Fed simply stupidly believed their own models, formulas, and bullshit that their policies would get the economy back on track...or...that they actually knew what they were doing and the fact that we are "here" is by design rather than accident?!?

buzlightening's picture

dead head fed fuds will reverse repo the life out of this debt gone wild party as in the Fall '08.  We the people need not be fooled by what crisis we get stuck in, with an ultimatium to TARP failing institutions.  This time around the hanky panky poulsons, yanking the wooden headed paid off CONgress and SINate; get stuffed back in the debt based bottle of insanity the rat bastards created.  We the people don't eat it but let the banksters eat it and go belly up. Let capitalism work and the fools go under and we save what's left of America. Those who go off the deep end in debt gone wild get exactly what naturally happens through riotious living.  Leaving our founding fathers principles with reckless abandonment and having the gall to leave we the epople as bag holders.  ENOUGH OF THIS SHIT!  Send the tyrannic rat bastards back to hell from whence the parasites came.  The ilk won't kill the host and our republic.  LET FREEDOM RING IN 2014.  THROW EVERY RAT BASTARD INSCUMBANT OUT OF OFFICE THIS YEAR.  WE CAN'T DO IT PEACEFULLY THROUGH OUR ELECTIONS THIS YEAR, WHICH ARE SO BOUGHT AND PAID FOR, THEN BY SOME OTHER WAY THEREAFTER.  

Element's picture



When I first heard of POMO day I was deeply shocked, "OMG! ... the markets! ... they're actually being completely effing rigged!"


Now nothing surprises me - NOTHING!

All that happened was POMO got bigger and Bigger and ... BIIIIGGERRRR!!!

No one did anything when they rigged it, and so brazenly, so they just tried to formalise it by pretending the rip-off was actually a valid part of a healthy functioning market.

And they got away with it! lol Not one of the TBTF scum went to prison for it - still!

You've got to wonder when these wankers are actually going to be put to the sword?

ChaosEquilibrium's picture

ELEMENT:  When this STATUS QUO FRAUD is understood........TBTF and their seed will not survive!


Now when that might be....I have NO prediction.....but the last 5 years have not been too reassuring that it will be Americans that act!!:):)

Confundido's picture

Ok, long should ANY reverse repo be outstanding in order to significantly a) unwind the outstanding holdings of the FED, PLUS b) address the continuation of the US fiscal deficit??? Indefinite, ever expanding reverse repos??? Fair enough! Now, if we have an evergreen reverse repo operation that drains a substantial amount of excess reserves, it will mean that USD unsecured depositors have their deposits backed by US Treasuries reverse repoed. So here comes the second question: What would you think would happen if US Treasuries were seriously repudiated? Would deposits not fall? And if they fell, would banks not have to increase the rate they pay to keep/attract deposits? And if they increased such rate, would the banks not demand an ever increasing reverse repo rate from the Fed? And if the Fed was forced to pay a higher reverse repo rate...would the Treasury not see the cost of debt rise on new issuances, exactly at the moment in which the Fed seeks to unwind and the market drops them? Would the Fed not do both things, like any other banana republic central bank, whereby on one hand they purchase new issuance and on the other one they reverse repo, incurring into a negative net interest income that has to be monetized???

Clowns on Acid's picture

Once the Fed found out that this was how Lehman was masquerading for 2 years before collapse, they figured it was a good strategy as any to keep the remainng banks "looking good" for analysts like Dick Bove. 

The Invisible Foot's picture

But, da fundaMENTALS is saying buy anything that moves?

SheepDog-One's picture

The insanity is that $57 billion can be called 'modest'.

Uinta's picture

How do T-bills supplant cash as quality collateral? Hasn't the FED essentially made them the same? In other words, what year end benefit do banks have by increasing their holdings of securities vice just keeping the cash on the books?

ajwdct's picture

While there is no proof the additional Fed supplied liquidity to its dealer banks/other investment banks has gone into equities, there is anecdotal evidence.  This article documents that and challenges regulators & Congress to investigate:


"We challenge the press, the SEC, CFTC, and the U.S. Congress to investigate both the December 18th sharp run-up in the stock market indices as well as the December 19th plunge in the gold price.  The Fed should be asked what role, if any, it played and specifically what financial instruments (stocks, ETFs, futures, options, etc.) were used.  The Fed's Primary Dealers should also be asked the same questions."