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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Cassandra Syndrome's picture

Green Shoots turned into Brown Sharts?

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.

ivana's picture

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

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.


Thomas's picture

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

boiltherich's picture

Temporary suspension of margin limits? 

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



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.

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.

SheepDog-One's picture

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

Roy Bush's picture

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

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.


karzai_luver's picture

You got it.


We are coming for YOUR PEAS BITCHEZZZZZ.


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.

Hansel's picture

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

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).

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. 

trav7777's picture

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

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?

StychoKiller's picture

Miffed?  Goes without saying.

Upset?  With good reason, of course.

Disturbed?  WE'RE FURIOUS!

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.

MichaelG's picture

Certainly, Cheradenine.

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

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.

Steroid's picture

It is time to kill Osama again!

quasimodo's picture

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

nah's picture

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

karzai_luver's picture

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


Josh Randall's picture

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

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.

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.

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.


slaughterer's picture

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

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.


Dr. Engali's picture

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

Sutton's picture

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

That went so well late april 2010.

Enceladus's picture

money markets conditions (particularly, CP)


anyone know what this is refering to?

Cursive's picture


CP = Commercial Paper

citrine's picture

I would assume,  Commercial Paper

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?

scratch_and_sniff's picture


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 !

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!




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..

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

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.

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?

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.