Another Quarter, Another Blatant Window Dressing By The Primary Dealer Banks To Make Their Balance Sheets Seem Strong

Tyler Durden's picture

When back in 2010, Lehman examiner Anton Valukas exposed the bankrupt bank's Repo 105 practices (which subsequently we learned were also partaken into by most other banks, although the trail ends there and nobody was prosecuted for it, let alone went to jail -after all, everyone was doing it, and everyone knew about it), many were shocked and appalled that such a blatant window dressing practice was allowed to continue quarter after quarter. Which is why we suppose nobody will be surprised to learn that glaringly "in your face" window dressing continues to this very day quarter in and quarter out by the same Primary Dealers who already leech billions in free Fed (i.e., taxpayer) money courtesy of a collusive BWIC/OWIC spread-to-market in the Fed's daily POMOs. The quote-unquote shocking chart below is one we have demonstrated on numerous occasions in the past: it shows total primary dealer assets on a weekly basis as reported publicly by the New York Fed. We have made it clear time and again, that this chart demonstrates nothing short of the end of quarter window dressing, when PDs convert their asset holdings into cash to make their Tier 1 Capital much more robust than it truly is. After all, none other than JPM and Citi were praising just how prepared for Basel III they are with their "sterling" capitalization ratios... which were only sterling courtesy of precisely the highlighted window dressing which occurs each and every quarter. We expect nothing less from Bank of America and Morgan Stanley when they report their own numbers in the coming days. We also expect the regulators to do absolutely nothing to prevent this blatant abuse of fiduciary duty which has no other purpose than to hide the true sad state of America's banking system.

Chart 1: cumulative Primary Dealers assets by week. The red line demonstrates the end of quarter asset holdings, and the arrow shows the Q3 end position. What is of note is that not only the PDs close Q3 with the smallest non-cash asset position in the entire quarter, but that their total asset holdings dropped from $291 billion on August 24 to $202 billion on September 28, a massive window dressing drop of nearly one third. What is also very notable is just how long the window dressing practice has been going on for. Naturally, the first week following the EOQ window dressing has seen the PDs promptly ramp up their asset holdings by a good $24 billion from the Q3 minimum of $202 billion to $226 billion. We expect this number to grow to nearly $300 billion in the coming weeks.

Chart 2: this chart removes any noise (and doubt) and shows just the minimum, maximum and end of quarter position of PD assets. There is absolutely no mistaking what is going on. Beginning in Q1 2008, with just one exception (Q3 2008, when Lehman blew up and killed the whole window dressing practice as PDs then had other more pressing concerns on their hands), every quarter PD asset holdings have closed their quarterly books with disclosed assets at or just near the quarterly minima, with min to max swings as large as $126 billion (Q4 2010). The past quarter saw the PD community liquidate assets into the quarter end to the tune of $93 billion from the intraquarter highs of $295 billion hit on July 27, 2011. If there was any Evidence A to be presented in a court of law, this would be it.

And to those curious just which asset class was used most actively by the PD community to effectuate the end of quarter swing, and the post EOQ rebound so deftly, we have the answer: it is precisely those bonds that the Fed has made risk free: the Bonds that have a maturity of under 3 years. As can be seen on the chart below, a whopping $22.8 billion of sub 3 Year Bonds were sold into the quarter end, only to be repurchased promptly thereafter in the amount of $25 billion.

How did the rest of the curve move in the same time period? Not much as the following 3D chart shows:


As for what the total notional amount of Treasury holdings in the PD community is, the following chart will answer that question too:

There are other nuances, most notably when it comes to holdings of MBS, Agencies and Corporate Bonds by the Dealer community but the findings there are less surprising.

What is, and what took a simple blog 30 minutes of excel analysis and a public database to figure out, is that the recently expanded list of 22 banks which comprise the Primary Dealer community continue to lie about their true financial health. And just like in the case of Lehman, when everyone knew about Repo 105 but nobody dared to say anything as it would expose everybody, accountants, and regulators certainly included, so this time around nobody will do anything to stop the same practice which continues to this day, as the opportunity cost of fixing what is broken is actually confirming just how weak America's banks are, and that years after Lehman, they still engage in precisely the same deceptive practices.

And that, in a society in which nobody takes responsibility for anything, least of all failure, simply is unacceptable.

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Jim in MN's picture

How much is that doggy in the window....

The one with the waggity tail and then just a bloody stump where the dog part should be?

How much is that doggie in the window....

Cynical Sidney's picture

primary dealers and commercials really knows how to mark to market, using 'creative' accounting gimmicks that hide everything off your balance sheet. fas 157 fas159, shell companies repo agreements etc. my solution: hang them. everyone of these thieving fcuks, make an example to all.

fourchan's picture

no mark to market accounting = a fraudulant joke.

Western's picture

Hey what's up with the 3d chart?

Michael's picture

Do you want to know why the mainstream media and the establishment hate bloggers and the blogosphere so much?

One word; Crowdsourcing.

The process isn't pretty, but we get the job done in lighting speed.

There's no topic we can't tear apart for fact from fiction in no time like the Internet blogosphere can.

This is why virtually all those card carrying members of the CFR, who are the main reporters for all major news networks, are shaking in their boots.

We pick apart their lies with lighting speed.  Crowdsourcing!

They hate us for our Crowdsourcing Skills.

Michael's picture
CFR Membership  "The Council on Foreign Relations (CFR) is first and foremost a membership organization. With over 4,500 members, CFR's ranks include top government officials, renowned scholars, business leaders, acclaimed journalists, prominent lawyers, and distinguished nonprofit professionals. Members participate in meetings, panel discussions, interviews, lectures, book clubs, and film screenings to discuss and debate the major foreign policy issues of our time. Members have unparalleled access to world leaders, senior government officials, members of Congress, and prominent thinkers." "Quality, diversity, and balance are the key objectives sought by CFR in the composition of its membership. New members are named twice a year by the Board of Directors, which invites individuals to join based on recommendations by the Committee on Membership. The committee is composed of five members of the Board and a number of other members chosen by the committee chair. To be considered by the committee, candidates must be nominated by a CFR member and seconded by three other individuals (maximum of four)." The official roster of CFR members is listed in the annual report. You may obtain the roster in two ways:
jeff montanye's picture

my favorite membership organization is the goldman sachs alumni (ae) one.  thanks to tyler i see where draghi, the incoming ecb head, is not only such but has been specifically accused by canfin, member of the european parliament and member of its committee on economic and monetary affairs, of assisting greece in fraudulently window dressing its own insolvency via swaps while draghi was working for goldman.  nice.

philipat's picture

At least this time around there is real money involved. To the extent that anything is real at present. In the Lehman endgame it was just a shell game but without any balls under any of the shells. Presumably at that point in time NOBODY would have actually trusted Lehman with any real cash "guaranteed" by total crap, even if only "Overnight". So this latest fraud is not as fraudulent as the prior fraud. Sigh......................................

DeadFred's picture

The books are manipulated, but are they cooked? Anyone willing to see whether they follow Benford's law?

AldousHuxley's picture

more than just cooked. wall st. and CEOs are corrupt to the core. They are not humans.

My Soapbox Advice to the OWS Movement and then?some

I may not know much, but I know a lot of it. So I decided to share my opinions and thoughts on what I would do if the OWS movement either elected me Grand Poobah or asked for my advice:

1. The Great Lie of Wall Street.

Every CEO tells the same great white lie. It is at the heart of every communication. It is at the heart of every financial decision. It is, at its very base, the reason why you all are in the 99pct and they are in the 1pct. The Lie ?

Great CEO ?White Lie = We are acting in the best interests of shareholders.

When a CEO utters this lie, everyone automatically forgives whatever they do. Add 10k jobless to the unemployment rolls? Sorry, we did it in the BEST INTEREST OF SHAREHOLDERS. ?Merge or buy a company and cut back across the board? We did it in the Best Interest of Shareholders.

The problem is that unless the company is losing money and it is the only way to keep the company alive, in this era of 9.1pct unemployment ?it NEVER is in the BEST INTEREST OF SHAREHOLDERS.

Shareholders, whether they own shares directly or through mutual funds or pensions do not live in a corporate vacuum. ?Their lives are impacted by far more than the share price of a stock. Every layoff in the name of more earnings per share puts a stress on the economy, on the federal, state and local governments which is in turn paid for through taxes or assumption of government debt?by&.wait for it.. the same shareholders CEOs say they want to benefit.

If OWS really wants to change corporate structure and impact the economy, talk to shareholders. Talk to your parents, uncles/aunts, cousins, friends who own shares of stocks either directly or indirectly and have them state loudly and clearly that they would rather have a higher Price to Earnings Ratio and even a lower stock price than have their TAXES increase in order to support all the people laid off from their jobs in the name of shareholders! ?

You might even consider buying a share of stock. Just 1. Maybe you can all pitch in and then go to a shareholders meeting and let them know how you feel about the best interests of shareholders.

2. ?Push to Make All Financial Institutions Partnerships

We should make all investment banks become reporting partnerships (meaning they still have the same reporting requirements they have today ). I would have no problem with our government loaning money to the partners of Goldman Sachs and Morgan Stanley and other Too Big To Fail Institutions so that they can buy back all public shares of their stock. Of course all those ?partners would become personally liable for repaying that money back to the government. ?It would probably be about 120B dollars in total to take these 2 companies private. That is far, far less than a possible bailout would cost.

Those personal guarantees would change EVERYTHING in the banking industry. It would change the decision-making process across the board. ? There would be a moral hazard to every decision. Today, a wrong decision and they vacation on their yacht. As a partner, ?the wrong decision and they are protesting right next to the OWS crowd as a 99pcter. ?It would be the definition of having skin in the game.

3. ?Limit the Size of Student Loans to $2,000 per year

Crazy? Maybe, maybe not. ?What happened to the price of homes when the mortgage loan bubble popped? They plummeted. If the size of student loans are capped at a low level, you know what will happen to the price of going to a college or university? It will plummet. ?Colleges and universities will have to completely rethink what they are, what purpose they serve and who their customers will be. Will some go out of business? Absolutely. That is real world. Will the quality of education suffer? Given that TAs will still work for cheap, I doubt it.

Now some might argue that limiting student loans will limit the ability of lower income students to go to better schools. I say nonsense on two fronts. The only thing that allowing students to graduate with 50k , 80k or even more debt does, is assure they will stay low income for a long, long time after they graduate! The 2nd improvement will be that smart students will find the schools that adapt to the new rules and offer the best education they can afford. Just as they do now, but without loading up on debt.

The beauty of capitalism is that people like me will figure out new and better ways to create and operate for profit universities that educate as well or better as todays state institutions, AND I have no doubt that the state colleges and universities will figure out how to adapt to the new world of limited student loan

Read more:


jeff montanye's picture

interesting ideas all.  thanks.

FreedomGuy's picture

The false religions of Keynes and Central Planners is a lie. It is all lies built upon lies and a bad understanding of economics. They are all so far into it that there is no way out. They will lie, manipulate, print, etc. until it all comes crashing down. They are "all in" and unfortunately for us it means as citizens we are "all in", as well. Those debt markers and mad schemes ultimately accrue to us.

The only way out is through the abyss they've created. They will not undo it voluntarily.

wombats's picture

Why should anyone be surprised by fraud?

Isn't the FED's whole purpose to enable the TBTF banks to prosper...or at least to seem to prosper?

Just add this to the list of reasons to end the FED

Harlequin001's picture

If the Fed don't allow the banks to steal your money then they have to provide the funds to recapitalise through TARP and direct 'capital' injection etc, if you can call it that.

It's is just unfortunate that this method of allowing banks to 'trade' their profits in involves the payment of outrageous bonuses, but that's a small price to pay for credit isn't it?

So the Regulators have to sit back, turn on both the internet and a blind eye whilst the banks steal your money. It's for your own good you see...

AldousHuxley's picture

Fed's whole purpose is to backstop banks when the gambling bets turn wrong by socializing the losses to general public.


Without the Fed, ALL banks would have been wiped out. Doesn't mean banking system is over, because you can start new banks with new management. Thus, Fed just ends up supporting the status quo of banking elites until they say they made enough money and go work for Treasury to get their entire profits exempt from taxes. Talk about someone not paying their fair share, it is the bankster execs.



FeralSerf's picture

Before the Fed, when banks' bets went south, tar and feathers was the solution.  It didn't get the money back, but there was closure.  Bank execs hated that.  Those were the good ol' days.

zorba THE GREEK's picture

Those were the good old days, and they will be returning soon.

The whole financial system is built on trust, and the rest of the world sees

through this BS. We are rapidly approaching something called 'catastrophic

bifurcation' in the financial markets. That's when things deteriorate to a point

of no return, and at that point the decline feeds on itself and nothing can be

done to turn it around. The banking system will fail and there will be blood in

the streets. The only problem is that the entire world economy is dependent on 

the banking system and like it or not everybody is going down with it. (except

for the few that saw it coming and took radical steps to protect themselves from it)

Not many people understand how fragile our current lifestyle is in the western world.

If any part of the complex systems of our society break down, the whole interdependent

 ball of wax could fall apart.


AldousHuxley's picture

American oligarchy has duped the American public, but Chinese, Russian, other worldy elites are not a product of shitty American undereducation system. They have already decided. It is only a matter of when. Largest holder of US Treasury is not China but Americans. They are holding their own bag of shit.



Long-John-Silver's picture

The Ponzi must continue at any and all costs.

Harlequin001's picture

sadly, and it will cost all in the end I'm afraid...

AldousHuxley's picture

globalization is to continue the ponzi at a global level. Chinese and Indians don't know what capitalism is yet.

Snakeeyes's picture

The rules of 7's at work!

We lost $7.25 trillion in home equity and Euro banks have to suffer a $7 trillion credit contraction to get their banks like US and Japanese banks.


msmith's picture

The SPX sees an important top may have been put in with risk off momentum to pick up.  This makes sense as it lines up well with other critical turning points with the DX, EURUSD, and USDCAD.

Adrenaline_Jockee's picture

THe triple top lines up with my fav. 70wma line.  This indicator hasn't been wrong for 20 years..(knock on scotrade monitor).  If we have another UP week, then litterly everything is broken, and ya might as well go 25% long divy paying blue chips, 25% cash, 25% PMs, 20% short --- nflx, crm, rimm, lnkd, --- and 5% leap puts.


The Big Ching-aso's picture

I don't know when this will all grenade but I do know that it will grenade.

Knowing this gives me a sense of fucking calm.

Elooie's picture

How do they get around the asset sell when its actually a loan? I understand what they are doing but not the accounting behind it. How do they get around the liability on the balance sheet?

FinalCollapse's picture

The real owners of this country are not interested in citizens understanding their accounting tricks.

Subprime JD's picture

Repo 105 cubed motherfuckers

lizzy36's picture


Lately one hears a lot about how the "bank portion" of TARP worked, because the banks raised capital and paid TARP back.

What this position conveniently forgets, is the ONLY reason the banks were able to raise capital was because they were bailed out to begin with. The bailouts implied TBTF forever. And with that effectively the the government became the gurantor of the banks balance sheets, and the private capital flowed. NOT because, as this post demonstrates, because the banks or their balance sheets were or are healthy.

So, keep up the accounting tricks, the balance sheet fraud, the Mark to Rainbows & Unicorns, because TBTF lives.

AldousHuxley's picture

Some banks paid TARP back but not ALL banks

Some banks paid TARP with AIG money

US government (tax payers) basically paid for the premium of having cash on hand when nobody else was willing to lend the banks money. That premium was the subsidy. But banksters will tell you TARP is paid back so they are entitled to their bonuses.

Bankers flush wish cash are now from Fed are letting asset prices drop (make middle class suffer) so that they can scoop in at fire sale prices for guaranteed profit. That's what's wrong with trickle down policy. Banksters who have first dip into capital take middle class hostage.


Dingleberry's picture

Plus they get 0% loans from the discount window to "reinvest" in the treasury spread. Guranteed profits. But it's still not enough to cover their losses.  Look at their stock prices.....and that's not even counting the lawsuits coming at them over the next year or so. Saddle up, it's gonna be a bumpy ride!

AldousHuxley's picture

Yes...even with all of that bailout of American banks, financial system is still crashing because financial networks are globalized now. When overseas banks/municipalities go bust, then American banks will also have massive losses as well as less export demand. Fed can save America, but Fed can't save the world.


The State of the Bailout

OUTFLOWS: $580 billion This includes money that has actually been spent, invested, or loaned.

INFLOWS: $345 billion Money returned and paid to Treasury as interest, dividends, fees or to repurchase their stock warrants.


Fannie and Freddie (the other bailout)

Total Allocation: Unlimited

Disbursed: $169,000,000,000

Revenue: $ 27,918,000,000

 Net Outstanding: $141,082,000,000


Harlequin001's picture

'Fed can save America, but Fed can't save the world.' - Er yes it can, provided it can stave off a declaration of default by any one big bank, sovereign or other financial player, but the world won't be a pretty place once it's done it. To do so would require that a significant proportion of existing bonds be monetised and turned to cash. That is monster inflation that the Fed is gambling it can contain through derivatives, which is what keeps the agricultural 'third world' poor.

When you look at how money is created the Treasury asks the Fed for money which the Fed has an unlimited supply of. The Treasury creates a debt instrument which it sells to the Fed for the cash and which the Treasury then makes available for Congress to spend. To reduce the money supply the reverse occurs, where the Fed returns said T Bill to Treasury and the Treasury returns said cash to the Fed. The Treasury deletes the T Bill at par and the Fed deletes the Cash. Done, and everything is balanced, or so the story goes.

Instead of a TBill think of it as a defaulted Euro bond, which the Treasury buys for newly printed USD cash at par and then sells to the Fed for its equivalent in USD. The Fed now holds Euro bonds on its balance sheet at par, when in reality they are worthless, same with CMBS etc and etc..

Since the Fed now holds a worthless Euro bond outright it can simply shred it and create new USD cash from nowhere to sit on its own balance sheet to balance the books. Eurobonds are monetised by the Fed without the need for an ECB. The Fed then only needs to use this same cash to buy another US TBill having successfully monetised a Euro bond for the ECB. or a Samurai's for the BOJ etc.

It just requires that other CB's continue to buy US TBills, which they can due to the lack of any constraints on magic money. Whichever way you look at this, gold and silver are where it's at. If they succeed we have rampant inflation, if they fail we have collapse and a run to gold. Everything leads back to gold.

Raymond Reason's picture

And Pontius Pilate answered Jesus and said: "What is Truth?"

Milestones's picture

" The Truth is what I say it is; not one word less nor one word more."  Humpty Dumpty  "The Wizzard of Oz"        Milestones

KingdomKum's picture

2 words  -   Alka Seltzer    .  .  .  

LeonardoFibonacci's picture

One word:  Fuck you.....(i cunt count)

RobotTrader's picture

Any of you guys who are long gold better hope and pray that the Ponzi Pyramid continues.

And that the PD's lie, cheat, steal, or do whatever is necessary to create the false illusion of health.

Otherwise, all risk assets are going to go down in a flaming heap.

The Big Ching-aso's picture

Are you male?

If yes, then the answer will undoubtedly be, "YOU BETCHA!"


mynhair's picture

O, piss off.   A little Tarnex keeps the shiny shiny.

Adrenaline_Jockee's picture

For sure.  But PMs will be the first to rise from the ashes.

Mark123's picture

You are funny!  What a comedian!!!

Mr Lennon Hendrix's picture

What's funny is that Robo uses fire as an alalogy to gold when we all know that gold does not burn.

Gunther's picture

only paper gold is risky.
Have you ever realized that bullion is one of the very few investments without counterparty risk?
After the pyramid implosion bullion will still have value; with any paper-asset I am not so sure.

The Big Ching-aso's picture

"....whatever is necessary to create the false illusion of health."

Is this anything like pretending you're not insane?

Aeonios's picture

Yes, I'm sure there's plenty of people who bought gold at $280/oz who are just shaking in their boots. Oh, and those poor folks who bought it at $1000. What ever shall we do when our $1000 gold is only worth $1400?

dr.charlemagne's picture

hey robo, where is the money gonna go when treasuries have a blow off top?

tekhneek's picture

It's actually cool with me if things cost less/more in terms of currency.

I care about purchasing power.