Over one year after Zero Hedge made POMO, and the Fed's open market operations group a household name, and Brian Sack a household curse, the NYT has finally decided to write an expose on the people who are charged with enforcing America's transition to central planning. And they just happen to be the grizzled 40 year old Mr. Sack, a 34 year old supervisor, two 29-year olds and a 26 year old ... who goes to NYU. Yes, ladies and gentlemen, these are the people who are gifting billions in commissions to the Primary Dealers on a daily basis. You see, the FRBNY whiz-kids have a "computer algorithm that works out which [offers] to [lift]. The computer compares the offers from Wall Street against market prices and the Fed’s own calculation of what constitutes a “fair value” price." In other words, taxpayers are getting raped during each and every single POMO but that's ok - the Fed's algorithm, probably created by yet another ex-Goldmanite, determines that said raping is "fair" and with absolutely no transparency anywhere in the process, except of course the Fed telegraphing in advance what bonds will be monetized, there is no way to ever check... Because that kind of mutually assured destructive disclosure would mean the financial world would promptly implode in a case study of total protonic reversal. After all, only smart people (and we are talking Wall Street smart) can handle the responsible truth... of daily Primary Dealer Subsidies.
Behold what the nerve center of 21st century central planning looks like. Note the abundance of Bloombergs:
Blake Gwinn, left, and James White in the operations room at the Federal Reserve Bank of New York.
As for the lovely pre-cleared narrative of how a few people run the world on behalf of Wall Street, pardon, revive the economy, here is the spin, courtesy of the NYT's Graham Bowley.
In a spare, government-issue office in Lower Manhattan, behind a bank of cubicles and a scruffy copy machine, Josh Frost and a band of market specialists are making the Fed’s ultimate Wall Street trade. They are buying hundreds of billions of dollars of United States Treasury securities on the open market in a controversial attempt to keep interest rates low and, in the process, revive the economy.
To critics, it is a Hail Mary play — an admission that the economy’s persistent weakness has all but exhausted the central bank’s powers and tested the limits of its policy making. Around the world, some warn the unusual strategy will weaken the dollar and lead to crippling inflation.
But inside the Operations Room, on the ninth floor of the New York Fed’s fortresslike headquarters, there is no time for second-guessing. Here the second round of what is known as quantitative easing — QE2, as it is called on Wall Street — is being put into practice almost daily by the central bank’s powerful New York arm.
What exactly is the Operations Room task? Why to gift huge bid/ask spreads to the Primary Dealers of course, making sure that bonuses of traders in the govvie desks of the PD crew are well padded, and those same people continue to cooperate in the pumping of the ponzy pyramid. But in NYT speak, this is known as getting the "best possible price" - too bad this is the best possible price for Goldman, not for Joe Sixpack, who is unaware that the bent over Vaseline treatment proceeds daily with every single POMO, which directly funnels tens if not hundreds of millions of dollars to the Primary Dealers (we don't know - you see the Fed does not disclose the asking prices that ultimately are lifted, contrary to what the NYT will have you believe.
Each morning Mr. Frost and his team face a formidable task: they must try to buy Treasuries at the best possible price from the savviest bond traders in the business.
The smallest miscalculation, a few one-hundredths of a percentage point here or there, could unsettle the markets and cost taxpayers dearly. It could also embolden critics at home and abroad who say QE2 represents a dangerous expansion of the Fed’s role in the markets.
“We are looking to get the best price we can for the taxpayer,” said Mr. Frost, a buttoned-down 34-year-old in a striped suit and rimless glasses.
Unfortunately, the best price for the taxpayer is one which results in billions in commissions to Primary Dealers at the end of any given QE program (and there will be many after the current one is done).
Louis V. Crandall, the chief economist at the research firm Wrightson ICAP, said Wall Street bond traders were driving hard bargains. The Fed has tipped its hand by laying out which Treasuries it intends to buy and when, giving the bond houses an edge.
“A buyer of $100 billion a month is always going to be paying top prices,” Mr. Crandall said of the Fed. “You can’t be a known buyer of $100 billion a month and get a good price.”
Nevertheless, Mr. Frost and his team have been praised on Wall Street for creating a simple, transparent program. Neither the Fed nor Wall Street want any surprises. The central bank is even disclosing the prices at which it buys.
Mr. Frost and his team work out of a small, beige corner office with arched windows that used to be a library. There, at about 10:15 most workday mornings, one of them pushes a button on a computer. Across Wall Street, three musical notes — an F, an E and a D — sound on trading terminals, alerting traders that the Fed is in the market.
On one recent Tuesday morning, what Mr. Frost and his five young colleagues did over a 45-minute period might have unsettled even a seasoned Wall Street hand: they bought $7.8 billion of Treasuries.
As for the actual people who push the buttons to see of this symphony of taxpayer rape, meet 26 year old Tiffany Wilding (who will graduated from NYU in 2013), 29 year old Blake Gwinn and 29 year old James White. These are the people who every day (and in some cases twice daily) proceed to monetize billions in bonds.
The real work is done by three traders who are referred to during the operation as trader one, trader two and trader three. They sit at a long table against the wall, tapping at seven screens.
On one recent morning, trader one was Tiffany Wilding, 26. While she reviewed the stream of offers and then the prices finally accepted by the algorithm, trader two, Blake Gwinn, 29, double-checked her decisions and trader three, James White, 29, made a duplicate of everything in case the computers crashed.
All the while, Mr. Frost stood behind his colleagues, ready to intervene — and even cancel the Fed’s purchases — at any sign of trouble.
Too bad the only sign of trouble is if the Primary Dealers are not extracting their daily allotted ten/hundred million pounds of flesh.
And between the talented Mr. Sack, and the NYU students who actually execute the billions in dollars, there is the mysterious Mr. Frost:
Mr. Frost — a Rutgers math grad who has worked at the Fed for 12 years, lives in the Borough Hall area of Brooklyn and takes the subway each day to work — is fairly well known within the dealer community. He and his team talk to the big banks most days.
The job carries great responsibility and is prominent within the Fed.
So prominent and so responsible... yet his entire QE2 operation has been an abysmal failure - note the rates on the 10 Year today, and 2 months ago when QE2 started. Oops...
Mr. Frost, and his boss, Brian P. Sack, insist the program has succeeded. Mr. Sack, 40, joined the Fed 18 months ago to run the entire markets group. He has a Ph.D. from M.I.T. and worked most recently for a Washington consulting firm. In 2004, he wrote a paper with Ben S. Bernanke, the future chairman of the Federal Reserve, and another economist about unconventional measures for stimulating the economy in extraordinary times — just like large-scale purchases of Treasuries.
“We didn’t know then that the Fed would be putting it to the test,” he said.
He said the Obama administration’s $858 billion tax compromise with Congressional Republicans in December complicated the macroeconomic picture.
But the biggest reason for the rise in interest rates was probably that the economy was, at last, growing faster. And that’s good news.
“Rates have risen for the reasons we were hoping for: investors are more optimistic about the recovery,” said Mr. Sack. “It is a good sign.”
And there you have it: to "prominent and respected" puppets within the Fed, evidence of the the adverse outcome is proof that the desired outcome has been achieved.
With lunatics such as this who needs Kool Aid... and who cares if teenagers with a penchant for Jersey Shore push the "Buy" buttons (also known as Any Key) at the heart of US central planning. After all it is more than clear by now that even Snooki knows to BTFD.