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Complete Summary Of The Fed's Meeting With Primary Dealers By Way Of A Primary Dealer

Tyler Durden's picture


Once again, straight out of Morgan Stanley's rate deks (or what's left of it after the whole TIPS implosion).

Treasury officials held a 12 pm meeting today with all 20 primary dealers to discuss market developments and financing options. They did not want to discuss specific contingencies related to the debt ceiling but did want to outline a course of action aimed at preserving access to the markets.

First, Monday’s bill auction will be held as scheduled.  Second, if there is a debt ceiling hike enacted before Wednesday’s 9am refunding announcement, the announcement, WI trading, and auctions will proceed as usual.

However, if there is no debt ceiling extension, three possible options were discussed:

1)  Delay the August refunding and issue a short-dated cash management bill as a substitute.  The bill could be rolled, as needed.  The coupon auctions would be rescheduled when the debt ceiling was hiked.

2)  Hold auctions as scheduled but at much smaller sizes using up only the available borrowing authority created by the maturing issues.  There are $24 bil of securities maturing on the 15th.  Dealers were concerned that you would have illiquid issues and playing catch up once the debt ceiling was raised, which would cause bigger problems.

3)  Announce a conditional refunding with WI trading.  The auctions would occur as soon as the debt ceiling was hiked.  Dealers argued that this was not a viable option either because markets would be unable to price the securities given the timing uncertainty.

Also, one dealer suggested auctioning a full size 10-year security, delaying the 3-year until the end of the month and blending in the 30-year to subsequent cycles

Treasury indicated that dealers need to be prepared for the possibility that auctions (even coupon auctions) will be announced, auctioned and settled on the same day (although Treasury agreed that a 24 to 48 hour period of WI trading would be preferable).

There was significant amount of discussion surrounding money markets conditions (particularly, CP) but policymakers did not provide any hints regarding if and how they might respond.

Dealers suggested that the Treasury might be able to repo their MBS portfolio to raise cash. However, Treasury officials did not offer any comment on this possibility.


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Fri, 07/29/2011 - 14:38 | 1505876 Cassandra Syndrome
Cassandra Syndrome's picture

Green Shoots turned into Brown Sharts?

Fri, 07/29/2011 - 14:50 | 1505917 Pedro
Pedro's picture

"Shart".  Hilarious.

Fri, 07/29/2011 - 14:52 | 1505925 slaughterer
slaughterer's picture

Tyler, many thanks, you are "faster than a speeding bullet" with the information that matters to hedge funds throughout the world.

"Dealers suggested that the Treasury might be able to repo their MBS portfolio to raise cash."

There are easier ways for Treasury to raise cash, but does not surprise me at all that a Dealer would suggest precisely an MBS repo.

Fri, 07/29/2011 - 15:14 | 1506030 ivana
ivana's picture

Raising cash for MBS ... ha ha ha ... sounds like inkjets are heating up agan!

Fri, 07/29/2011 - 15:52 | 1506166 EscapeKey
EscapeKey's picture

Presumably these are the same "AAA" rated issues, for which the market suddenly froze precisely because they were of such high grade.


Fri, 07/29/2011 - 15:13 | 1506023 Thomas
Thomas's picture

They failed to mention the discussion of how the primary dealers are to prop up equities at all cost.

Fri, 07/29/2011 - 16:14 | 1506262 boiltherich
boiltherich's picture

Temporary suspension of margin limits? 

Fri, 07/29/2011 - 17:36 | 1506545 NewThor
NewThor's picture

Let's seeee.....

Come Wednesday, The Bond Holders will get paid..

  The Soldiers will get paid

The Banks will get paid.

The Politicians will get paid.

and the rest of the Americans will have to fight for the scraps left from the $2.2 Trilly in tax cash flow.

and the Republicans



Fri, 07/29/2011 - 14:39 | 1505877 litoralkey
litoralkey's picture

This is a sane plan for permanent, decade long austerity.

Hence, it wil not be allowed to continue for more than 2 news cycles, lest the sheep wake up to the fleecing.

Fri, 07/29/2011 - 14:53 | 1505934 Re-Discovery
Re-Discovery's picture

Why aren't we discussing these options as PERMANENT ways to cntinue financing.  Oh, that's right.  It's a ponzi scheme.

Fri, 07/29/2011 - 14:39 | 1505878 SheepDog-One
SheepDog-One's picture

OH so really it was just a little tea and crumpet clatch.

Fri, 07/29/2011 - 14:40 | 1505882 Roy Bush
Roy Bush's picture

ZH...incredible.  I'm always shocked how Tyler is on the cutting edge of every financial story.  Thanks!

Fri, 07/29/2011 - 14:54 | 1505933 SignsAndWonders
Fri, 07/29/2011 - 14:44 | 1505893 101 years and c...
101 years and counting's picture

my sources tell me it was a party in the room.  the dealers all laughing about how they were about steal trillions of savings in only a few days.


Fri, 07/29/2011 - 14:55 | 1505939 karzai_luver
karzai_luver's picture

You got it.


We are coming for YOUR PEAS BITCHEZZZZZ.


Fri, 07/29/2011 - 15:39 | 1506116 Use of Weapons
Use of Weapons's picture

Can someone explain this meme to me, please? I've totally missed it.

Whenever I see 'PEAS' in finance, I think of Ray's principles [and try not to channel Jerry Maguire too much, respect n all] -- I'm assuming this isn't the reference, so...


Cut me a new one, but I don't understand your garden variety of reference here.

Fri, 07/29/2011 - 15:58 | 1506199 Hansel
Hansel's picture

Obama said we need to "eat our peas" when telling Congress to raise the debt ceiling.

Fri, 07/29/2011 - 16:14 | 1506256 Use of Weapons
Use of Weapons's picture

I'm a little disturbed by the answer, but thanks.

Amazon review:

If you are looking for a book full of witty conversation and exaggerated imagination for your children,"Eat Your Peas"is the best choice.
Basically, situations similar to those in this book can be found in every family, but the author and illustrator make them very appealing [WELL DONE - AWESOME PUN, +10 /sarc] If we follow the story page by page, we can see Daisy's mother getting upset and disconcerted. In order to persuade Daisy to eat her peas, her mother abandons her principles as much as she can. She even offers her a variety of bribes to make her change her mind. Unfortunately, Daisy always refuses to comply. As far as the text is concerned, it is not easy for a little girl to eat something which she really dislikes. I believe that most children if they are bribed, will give up their original ideas and accept the bribe, but Daisy doesn't do that. She has a very strong character and gives a good example for children.

Author - Kuei-Chu Sun. [!!]

I fear my references might be shooting the moon when POTUS simply has to reference a sub-par Mr Men book. Although, it does reinforce the theme that this POTUS is a potential great (asset to TPTB).

Fri, 07/29/2011 - 16:17 | 1506276 boiltherich
boiltherich's picture

It would have been so much more poetic had he said it was time to eat our broccoli considering BushCo hated broccoli and the roots of this mess are leftovers from his administration. 

Fri, 07/29/2011 - 16:36 | 1506346 trav7777
trav7777's picture

the roots of Busch's mess were leftovers from the previous administration as well.  Et cetera.

Fri, 07/29/2011 - 20:53 | 1506970 knukles
knukles's picture

You're disturbed by the answer?
You're fucking disturbed?
Like maybe you think you're the only one whose disturbed?
You're the only one that counts?
Not been to this rodeo before?
Not been listening?
Take a hard look at the circus of infant immortals unfolding right before your eyes.
Many of us have been harping on two very particular points.
Lack of credibility; all the way from the Governmental shafting, the screwing by the authorities vested with the responsibility to uphold and enforce the laes of the land, fucking over senior secured bondholders in favor of unsecured no claims parties with GM and Chrysler, right to the present.  Your gubamint sayin' fuck the laws. 
And you're disturbed?
The avalanche of money printing, formal 100% debasement of the dollar. 
And you're disturbed?
A city of light upon the hill turned into a den of madmen.
And you're disturbed?
Harping relentlessly on two strategies.... a flight to quality, saftey, in gold, silver, non-US dollars.... and as a hedge against an economy clearly having trouble breathing in the iron lung, bonds, locking in income....
And voila....
And you're disturbed?

Where have you been?

Sat, 07/30/2011 - 00:59 | 1507301 StychoKiller
StychoKiller's picture

Miffed?  Goes without saying.

Upset?  With good reason, of course.

Disturbed?  WE'RE FURIOUS!

Sat, 07/30/2011 - 06:09 | 1507431 Use of Weapons
Use of Weapons's picture




I have never held your (probably sincere) belief in 'the city of light upon the hill' actually ever existing - like Atlantis, it was a cute story, meant to illustrate a Platonic Ideal.


And I'm not a Platonist.

Fri, 07/29/2011 - 16:15 | 1506233 MichaelG
MichaelG's picture

Certainly, Cheradenine.

Edit: Oop, too late, I guess that makes me Gretel. Band-Aids, bitchez!

Fri, 07/29/2011 - 16:16 | 1506273 Use of Weapons
Use of Weapons's picture

No, two sources are better than one to confirm a story, in the land of Disney magic, plus you linked to an official source n all.


So thanks.

Fri, 07/29/2011 - 14:44 | 1505894 Steroid
Steroid's picture

It is time to kill Osama again!

Fri, 07/29/2011 - 14:56 | 1505942 quasimodo
quasimodo's picture

YES! YES! Let's watch Weekend at Bernie's for some more grand ideas

Fri, 07/29/2011 - 14:57 | 1505944 nah
nah's picture

invade atlantis zion or whatever with the US navy, kill OBL, defeat 'global' terrorism

Fri, 07/29/2011 - 14:57 | 1505946 karzai_luver
karzai_luver's picture

nah I think at this point a recap from a couple of the virgins will suffice.


Fri, 07/29/2011 - 14:44 | 1505896 Josh Randall
Josh Randall's picture

Did the Fed validate their parking after they gave them a "Team Building Excercise 2011" t-shirt ?

Fri, 07/29/2011 - 14:45 | 1505899 Cleanclog
Cleanclog's picture

As I mentioned earlier - trust me (yeah, loaded, I know) - there was emphasis to the primary dealers that their primary role in being anointed with that title is to make bids and put up offers whenever the Fed asks, along with making orderly markets (narrow spreads) to any institutional customer, to keep liquidity operating.  And wink wink, nod nod, no whispering about counterparty risk or credit, liquidity scares, money funds breaking the buck, and no no no messing around with the Com'l paper market.  Keep it functioning.

Fri, 07/29/2011 - 14:49 | 1505913 LawsofPhysics
LawsofPhysics's picture

Exactly, #2 will happen and the primary dealers will find another way to simply pass this on to the taxpayer at a later date, with record bonuses of course.

Fri, 07/29/2011 - 14:47 | 1505900 TruthInSunshine
TruthInSunshine's picture

I will bid on Maiden Lane I through Maiden Lane XXXXXXXXXXVIII slush funds, and I will also bid on the Fed's tnotes.

I bid $1 for each, but if I incur any losses, for any reason, whatsoever, the Treasury of the Amerikranski must bail me out of any losses, plus pay me a minimum compensation (call it a management and/or disposal fee) of 500 billion dollars.

Take the $2, Bernank. Do it. You know you want to.


Fri, 07/29/2011 - 14:55 | 1505936 slaughterer
slaughterer's picture

My fund will bid .01 under TruthInSunhine for all of the above items.  (Provided we get the same guarantees and privileges.)

Fri, 07/29/2011 - 15:00 | 1505961 karzai_luver
karzai_luver's picture

and I will bid 10 cents under either of you with no support provided I get to annoint the next Jeethner-bot.


That there is the real wealth suckas.


Fri, 07/29/2011 - 14:49 | 1505914 Dr. Engali
Dr. Engali's picture

Did they talk about how much they will need for tarp 2?

Fri, 07/29/2011 - 14:49 | 1505915 Sutton
Sutton's picture

Won't be a problem to repo the MBS holdings.

That went so well late april 2010.

Fri, 07/29/2011 - 14:51 | 1505923 Enceladus
Enceladus's picture

money markets conditions (particularly, CP)


anyone know what this is refering to?

Fri, 07/29/2011 - 15:04 | 1505982 Cursive
Cursive's picture


CP = Commercial Paper

Fri, 07/29/2011 - 15:07 | 1505991 citrine
citrine's picture

I would assume,  Commercial Paper

Fri, 07/29/2011 - 16:33 | 1506337 Alienated Serf
Alienated Serf's picture

Ceberal Palsy

Fri, 07/29/2011 - 14:52 | 1505928 Skeebo
Skeebo's picture

In other words.  No default, just that the Treasury and the Primary Dealers will have to work harder.


What's the problem again?

Fri, 07/29/2011 - 14:56 | 1505940 scratch_and_sniff
scratch_and_sniff's picture


Fri, 07/29/2011 - 15:03 | 1505951 depression
depression's picture

One hell of a "plan", did they write that all out on the back of a napkin over drinks ?

Money markets are gonna freeze right up, the proverbial "cold day in hell" has finally arrived !

Fri, 07/29/2011 - 15:03 | 1505955 PulauHantu29
PulauHantu29's picture

I remember when "the oldest"..."the most prestigious" MMF went Bust in 2008. I almost lost a big chunk of my wealth when The Reserve went Belly up. My broker had advised me, "it's one of the safest on Wall Street" if this one is one of the safest MMFs and went Bust, what about all the others?

From what I've read (and experienced with The Reserve MMF), MMFs are not as safe as they used to be:

"Sept. 17, 2008, 9:11 a.m. ED

Money market breaks the buck, freezes redemptions

Reserve Primary Fund stung by Lehman collapse, investor withdrawals" 


And here is what The Atlantic said about MMF exposure to Greek problems:

But according to Landon Thomas, Jr.'s reporting for the New York Times (hat tip Tyler Cowen), there's a threat of this happening again. This time not with the failure of an investment bank, but with a failure of Greece to pay its debts. Apparently "as of February, 44.3 percent of prime money market funds in the United States were invested in the short-term debt of European banks" including "French banks like Société Générale, Crédit Agricole and BNP Paribas" with significant exposure to Greek debt. 

Be sure to do your Due Diligence and act appropriately!




Fri, 07/29/2011 - 14:59 | 1505957 wombats
wombats's picture

Who needs to borrow or worry about repayments when all they need to do is print.  One phone call to Uncle Ben and he can crank out all the $ they need/want to repay all their debts coming due and make all of the SS payments as scheduled.  No problem..

Fri, 07/29/2011 - 15:01 | 1505966 oldman
oldman's picture

If true, this only shows how out-of-control the markets are and how ill-prepared Treasury is to cope. Leaving the the world economy on a minute to minute 'what if' status. We have known this was the case for years, but few of us, I am sure ever thought Treasury would admit publicly to throwing in the towel.

I could never imagined such a scenario as a complete capitulation of the US economy.

"Sail on brave ship of state, but the rudder just fell off and the captain and all my crew have abondoned you" is what this administration has said.

Where does this leave the rest of the world? This will not be forgotten by others even though the US population will forget it.

Astonishing is the only word I have for this.

Wow!   om

Fri, 07/29/2011 - 15:03 | 1505974 High Wire
High Wire's picture

"Dealers suggested that the Treasury might be able to repo their MBS portfolio to raise cash. However, Treasury officials did not offer any comment on this possibility."


I'm sure Daddy will provide.

Fri, 07/29/2011 - 15:16 | 1506038 Lmo Mutton
Lmo Mutton's picture

Just open up a new account at the FED.

Transfer part of the 16T balance.


Walla!! We now have (2) credit cards with 16T limits each.  Debt ceiling raised 16T with no more congress critters getting in the way.  SS, MED, and bankster wars saved till after the election.


Do I have to solve ALL the worlds problems?

Fri, 07/29/2011 - 16:00 | 1506210 Hansel
Hansel's picture

I think Treasury should print up some nice looking bearer bonds and see if the ECB will take them as collateral for a loan.

Fri, 07/29/2011 - 16:04 | 1506228 oldman
oldman's picture

too short, mutton

they are back at the drawing board looking at 1000 year maturity----zero coupon, of course

Fri, 07/29/2011 - 19:25 | 1506809 andybev01
andybev01's picture

It's spelled 'Viola!!'.

Do I have to solve ALL the word problems?

Fri, 07/29/2011 - 22:28 | 1507123 i-dog
i-dog's picture

"Do I have to solve ALL the word problems?"

Thankfully, no! It's actually spelled: "Voilà!" ... it's French ... for "See, there!" ... not a musical instrument.

Fri, 07/29/2011 - 15:16 | 1506040 ivana
ivana's picture

What happened to GS revolutionary idea of new US 100y bond?

trillion of LOLs

Fri, 07/29/2011 - 15:23 | 1506066 slewie the pi-rat
slewie the pi-rat's picture

july 6, 2011 @ reuters: UPDATE 1-U.S. Treasury MBS portfolio declines to $94.5 bln | Reuters

(Paste):   The MBS proceeds have been factored into the Treasury's debt limit calculations and are not expected to alter the Aug. 2 date when the department predicts it will no longer be able to pay all of the government's bills.

paper for paper;  straight across;  done!

move along, nothing here...

Fri, 07/29/2011 - 15:27 | 1506079 DavidC
DavidC's picture

Cause a crisis, then QE3.


Fri, 07/29/2011 - 15:35 | 1506102 oogs66
oogs66's picture

they probably have already repo'd their mbs position...with goldman...hence no comment

Fri, 07/29/2011 - 15:43 | 1506132 alangreedspank
alangreedspank's picture


Does that mean the NY Fed won't be able to POMO as much as they'd want without a debt ceiling increase ? If so, that would be interesting...

Fri, 07/29/2011 - 15:54 | 1506176 Spigot
Spigot's picture

IMO this is about the Federal Goverment continuing (or not) in making up the gap left open by US citizens inability to borrow and spend more and more as they had done for decades. If this becomes a lock down situation dragging on for months, dibs and drabs of little bits of increasing debt then effectively they will be letting the American economy implode on itself in earnest. And since everything is based on maintaining FLOW, a reduced flow will effectively induce a self reinforcing economic implosion which at a certain point can't be healed. I give it 3 months.

Fri, 07/29/2011 - 16:24 | 1506296 hedgeless_horseman
hedgeless_horseman's picture

I will postulate that Obama was set to take the fall well before the election.   Recall how hard it was/is for him to get/retain competant people for his treasury and budget team.  They had to buy Timmy a new red trike and forgive him for not paying his taxes.  It is the same old bailout game, except this time the target is America.

Fri, 07/29/2011 - 16:26 | 1506308 Downtoolong
Downtoolong's picture

What really cracks me up now is reading one of those traditional investor articles in Money Magazine or Kiplingers about portfolio balancing, tax strategies, appropriate retirement savings rates, etc. There is something pathetically perverse about investment advice which can only be acted on in a financial system seemingly on the verge of collapse.  It analogous to decorating advice from an interior designer for a house built on quicksand. At what point does the financial industry (including the central bank and U.S. Treasury that it controls) just admit to their customers that it is an abject and total failure?

Fri, 07/29/2011 - 19:28 | 1506818 andybev01
andybev01's picture

After the last penny is looted from the till, that's when.

Fri, 07/29/2011 - 16:39 | 1506348 The Count
The Count's picture








Sat, 07/30/2011 - 14:19 | 1507965 gdogus erectus
gdogus erectus's picture

<===========  gdogus rocks!

<===========  I'm a cork soaker.


Oh come on, man.  Have some fun with it!  Embrace it!

Fri, 07/29/2011 - 16:40 | 1506364 Manthong
Manthong's picture

Thank goodness we have the guarantees of FDIC, FSLIC, SIPC, PBGC etc. to insure our most important financial assets.


Fri, 07/29/2011 - 16:47 | 1506392 Segestan
Segestan's picture

Like bond selling merchants are going to stop selling debt!  Silly chasing the tail politics.

Fri, 07/29/2011 - 17:56 | 1506585 Buck Johnson
Buck Johnson's picture

They don't know what to do and from the article (especially from the last alternative), it seems that they aren't happy to do any of that stuff.

Fri, 07/29/2011 - 19:47 | 1506860 PLove
PLove's picture

Virgins at a FED Party.  

Or gold in Ft. Knox.





Fri, 07/29/2011 - 20:13 | 1506905 Destinapp
Destinapp's picture

So Ben Dandy gets the primary dealers to buy his just purchased $600B in bonds and he loans them the money from the Fed window at 0%. He passes the cash to Timmay and he gets another six months. Then Ben Dandy buys another $600B to "help" the economy when GDP goes negative this quarter. So he starts QE3 and the Teabaggers get the blame

Fri, 07/29/2011 - 20:40 | 1506950 Ungaro
Ungaro's picture

"Austerity" = "Eat your peas" = Merkans! You gotta lower yer standard of living to average third-world levels 'casue your gummint illusionsts can no longer sustain the mirage of prosperity.

Reality (is for people who don't do drugs) strikes again. What? We cannot borrow and spend our way to prosperity? That's crazy talk by some fringe domestic financial terrorists. Pay no heed, tune to MTV or American Idol and pass the damned bong!

Fri, 07/29/2011 - 21:40 | 1507029 wwwmm
wwwmm's picture

removed content (advertising spam)

Fri, 07/29/2011 - 21:47 | 1507065 wwwmm
wwwmm's picture

removed content (advertising spam)

Sat, 07/30/2011 - 13:45 | 1507917 Atomizer
Atomizer's picture

Bankers: We have our tit in the ringer. Help us out!!

Obama: Don't worry, the tax increase to fund the shell game will continue. We have 4G infrastructure to sell to all communities. You should see the revenue inflows. hehehehee.

Sun, 07/31/2011 - 12:25 | 1509871 Mediocritas
Mediocritas's picture

OK, so let's just cut to the chase. The Fed is going to become the proud new owner of the GSE's in exchange for cash at (massively overvalued) par. Doesn't matter if the repurchase ends up happening or not, point is that massive centralized authorities are going to end up owning a huge slice of US real estate and they won't have the brains to figure out how to clear it in any sensible way.

Nothing like a lack of personal ownership of homes to send a neighborhood to hell. The empire is very much in decline.

Sun, 07/31/2011 - 19:24 | 1510790 i-dog
i-dog's picture

"and they won't have the brains to figure out how to clear it "

Who said they planned to clear it? The bankers' sole objective in encouraging the unpayable debt was to OWN as much of the land in the US as possible. Result: 300 million feudal serfs working for the big landowners ... no more "land of the free".

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