State Street: Is It Trading for Federal Accounts? 11 comments
an article to
-
Font Size:
-
Print
- TweetThis
Zero Hedge has always been fascinated by the behemoths of securities lending (or not so much lately) State Street (STT) and Bank Of New York (BK): These firms, which allegedly had just marginal toxic exposure, were in the front lines for the TARP bailout and have traditionally been handled with velvet gloves by the administration. In fact, many would say the custodian firms are in a league of importance much higher than even Goldman (GS) or JP Morgan (JPM) as with their repo activity, security lending and cash collateral reinvestment, they are the de facto center of the shadow banking system.
A Cliff notes version of the stock lenders' Modus Operandi, sent in compliments of a reader:
- In the securities lending arb, stocks and bonds are lent out by custodians and investment managers. The loan is collateralized by the borrower with cash, the lender promises the borrower a return on that cash and then invests the cash in repo and short-term debt at a spread to that promised rate of return. The sec lending market is in the trillions. This market is basically rolling overnight repo right now as it tries to dig itself out of the MTM/liquidity hole.
- Many of the Fed/Treasury balance sheet efforts have been basically attempts to supplant securities lenders. Sec lending funds were the biggest buyers of 1-3yr FRNs (hence, TLGP). Lenders were also the biggest buyers of AAA cards and autos (read TALF 1.0). They were the second-biggest buyers of ABCP after 2a7 funds (ergo AMLF). Indirectly they were the largest funder of LT2 bank debt (via SIVs MTNs). They're large repo counerparties, and did everything from short-dated CDS to liquidity put options on Canadian levered super-senior CDOs.
- Many stock lending funds, which have similar accrual accounting regimes to '40 Act money-market funds, have broken the buck but are still trading at $1. for example see the section beginning "We may be exposed to customer claims" on p.11. What does this mean? Not only are certain securities lending providers opening themselves up to significant litigation risk but, importantly, clients in stocks can't reallocate to bonds (or vice-versa), since the sec lending funds aren't letting them out (except in-kind). Finally, of course, as long as sec lenders remain hurt but unsupplanted, they stay short duration, which extracts hundreds of billions of $$ in term financing capacity out of the market. Fed won't act as a lender of last resort since they're still smarting from the AIG sec lending bail-out they didn't see coming.
It is no surprise that in order to incite a return to pre-Lehman economic levels (the administration's #1 goal bar none), not only the stock market would have to go much higher from its March lows (a task largely accomplished through market increases on disappearing breadth, liquidity extraction by the likes of Goldman Sachs, and assorted last minute inexplicable ramp ups in the various futures and ETF markets), but also the shadow system would have to be back with a vengeance. And while new mechanisms to achieve this such as securitization replacement alphabet soups have yet to prove their efficacy, the real heart of the shadow banking system Frankenstein is and has always been the repo market.
Which is why we were greatly troubled when we learned recently on good authority that Federal representatives may have opened multiple undisclosed -type accounts with none other than State Street Global Advisors over the past few months. All of these accounts are allegedly handled by one single trader, who is cocooned and isolated from interaction with other partners.
Zero Hedge can, as of yet, not vouch for this being 100% factual and is asking readers who may have additional knowledge of the situation to please come forward and share their views (tips@zerohedge.com). If, indeed, the Federal Reserve or other derivatives of the administration, are now directly involved in trading, managing repo terms, stock lending, collateral distribution and other liquidity-crucial aspects of what was once an efficient market, then indeed this rally could be written off not merely as the biggest short covering rally of all time, but one that has been explicitly orchestrated by those who should be most impartial to an efficiently working market.
Zero Hedge is investigating.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication in the last week
Seeking Alpha 100 » -
Fastest Climbers
Those with the largestSee all
increase in followers
in the last week
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
Some days I just wish I did not know what I know.
Will it succeed? Doubtful. A more likely outcome will be a revolt by those deing deceived and robbed, followed by a massive outpouring of violence and reprisals against those who conspired to take what wasn't theirs. If it ends up being 'blood in the streets', the blood being let will be that of the elected officials and their bankster co-conspiritors.
Survivors will refer to it as the "Manhatten Massacre" and the "D.C. Armed Insurrection".
Take heed you thieves and liars: the punishment for treachery is death.
But-- again, if true-- taking "the administration to task" seems rather mild. Impeachment, mass resignations and jail would be the only way to salvage what is left of our Constitution.
I am afraid that it may well be true. I hope I am wrong.
On Jun 12 01:05 PM conceptwizard wrote:
> The proof would be the icing on the cake. This would allow the general
> public to take the administration to task. It would also allow a
> real evaluation of the markets should this complete and shameless
> rape of wealth surface as what it only can be, an attempt to revitalize
> the financial system by inflating stock prices using whats left of
> the wealth of Americans.
> Some days I just wish I did not know what I know.
- this seems unlike the FRB; we should they do this, and not use more of the measures they have in their back pocket Bernake is currently sitting on.
- if the USG is doing it, they appear to be way outside the lines of authorization.
1)there is funny business going on in the markets
2)they have billions to throw down at the end of the day with stick saves.
3) I do not know who is doing it but the government wants it done because they aint stopping it.
On Jun 12 02:39 PM jhartz wrote:
> America's economic heart is being ripped out and eaten by a gang
> of thieves who are embarked on a crusade. This crusade has one single
> goal: reducing Americans to paupers in order to set the stage for
> a "new world order".
>
> Will it succeed? Doubtful. A more likely outcome will be a revolt
> by those deing deceived and robbed, followed by a massive outpouring
> of violence and reprisals against those who conspired to take what
> wasn't theirs. If it ends up being 'blood in the streets', the blood
> being let will be that of the elected officials and their bankster
> co-conspiritors.
>
> Survivors will refer to it as the "Manhatten Massacre" and the "D.C.
> Armed Insurrection".
>
> Take heed you thieves and liars: the punishment for treachery is
> death.
So the best, safest, surest, plays were to Bet "Invest" in themselves and their Sector. The March 10 & 12 Touts by BAC & C, pretty much word for word repeats about Jan & Feb noted.
I took note of the virtual silence in the Media, especially the Financial Media, that the Big Banks ALL experienced Gains in the 100% to 5-Fold+ range. I refer you to BAC's 3.00 to 15.++, and C/Citi's 1 to 4+, but not much written about these huge 2 months gains.....and weren't many New Offerings made at these Highs.
On top of this a look at such heavy volume Double & Triple Financial Sector ETF's, like FAZ & FAS, saw moves like 115 to 5, and ALL saw heavy activity in their Options.
Of course wanting to give back the TARP Money is no surprise. They should all have Gains many multiples the original stake.
I also found it interesting seeing the WHouse Meeting with the Big Bans CEO's and what seemed odd at the time was hearing the Pres suggest Buy Stocks. You can google [ Obama Buy stocks ] and read the Headlines at the time, March 3, the kick-off March 9
Could not agree more. Have sent a copy of several of Tyler's articles regarding these late day trading spikes to Al Lewis, business reporter at Dow Jones News Service. Sure would like to see the mainstream business news media get involved with some investigative reporting on this. Doubt if they will, but you never know. You might want to do the same and send a few copies to some mainstream business reporters to see if any will take up the challenge. Now if we could just get Time or Wall Street Journal or Investors Business Daily or some larger outfits to report on it, we might actually find out what the truth is.
On Jun 13 10:24 AM dcb wrote:
> There are a few things that can't be doubted.
> 1)there is funny business going on in the markets
> 2)they have billions to throw down at the end of the day with stick
> saves.
> 3) I do not know who is doing it but the government wants it done
> because they aint stopping it.
On Jun 12 01:05 PM conceptwizard wrote:
> The proof would be the icing on the cake. This would allow the general
> public to take the administration to task. It would also allow a
> real evaluation of the markets should this complete and shameless
> rape of wealth surface as what it only can be, an attempt to revitalize
> the financial system by inflating stock prices using whats left of
> the wealth of Americans.
> Some days I just wish I did not know what I know.