Posted on 08/02/2009 5:37:23 PM PDT by Cheap_Hessian
Wall Street banks are reaping outsized profits by trading with the Federal Reserve, raising questions about whether the central bank is driving hard enough bargains in its dealings with private sector counterparties, officials and industry executives say.
The Fed has emerged as one of Wall Street’s biggest customers during the financial crisis, buying massive amounts of securities to help stabilise the markets. In some cases, such as the market for mortgage-backed securities, the Fed buys more bonds than any other party.
However, the Fed is not a typical market player. In the interests of transparency, it often announces its intention to buy particular securities in advance. A former Fed official said this strategy enables banks to sell these securities to the Fed at an inflated price.
The resulting profits represent a relatively hidden form of support for banks, and Wall Street has geared up to take advantage. Barclays, for example, e-mails clients with news on the Fed’s balance sheet, detailing the share of the market in particular securities held by the Fed.
“You can make big money trading with the government,” said an executive at one leading investment management firm. “The government is a huge buyer and seller and Wall Street has all the pricing power.”
A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them. Their transparency hurts them. Everyone picks their pocket.”
The central bank’s approach to securities purchases was defended by William Dudley, president of the New York Fed, which is responsible for market operations. “We believe that opting for transparency is a greater good,” he said. “If we didn’t have transparency, we’d be criticised on other grounds.”
(Excerpt) Read more at ft.com ...
I’m shocked! SHOCKED, I tells ya! ;)
I’m more shocked than you are - after all, shouldn’t Wall Street make markets in government backed securities and not make ONE SINGLE CENT in the process??!!/s
All I can say is, “keep your powder dry.” :)
Well, you heard about the evil military-industrial complex. This the evil wall street-federal complex.
I knew KNEW someone was manipulating the market.
Everytime, EVERYTIME lately bad news came out the market went UP! yeah right, like that is normal.
If this is true, then the stock market is not a true reflection of the GNP. It is being manipulated by treasury/government. This is another good reason not to invest in the market. At some point, it is going down the toilet.
YEP...it sure does. TOTAL manipulation now. Within a year, no private individual will have money in the market. You folks with IRAs and 401Ks will see their values detoriate if you leave the money there and let the managers of such funds rob you. Total ripoff now.
This also seems like a veiled attempt to rebrand the Federal Reserve as TRANSPARENT! In fact, the article goes so far as to say that this TRANSPARENCY hurts the Fed,
“The central bank’s approach to securities purchases was defended by William Dudley, president of the New York Fed, which is responsible for market operations. “We believe that opting for transparency is a greater good,” he said. “If we didn’t have transparency, we’d be criticised on other grounds.”
Aw, the poor Feds are damned either way. We are such hurtful cynical slaves, aren’t we?
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