Total Federal Reserve balance sheet assets for the week of August 12 of $2,047 billion (an run up of $57 billion from the prior week) consisting of:

• Securities held outright: $1,449 billion (an increase of $123 billion MoM, resulting from $44.6 billion in new Treasury purchases, $69.7 billion increase in MBS and $8.6 billion in Agency Debt), or $18.6 billion increase sequentially
• Net borrowings: $340.5 billion (the number was stale as of the update due to a lag in Fed H.3 borrowing update)
• Float, liquidity swaps, Maiden Lane and other assets: $258 billion (another major

In a dramatic reversal to the moderating trend from the past several months, Mass Layoff Events surged from 256,357 in June to a whopping 336,654 in July, a

You thought the Fed had a lot of freedom? You ain't seen nothing yet. According to two MIT economists, Ricardo Caballero and Pablo Kurlat, the Fed should directly get into the credit default swap business to "prevent the next crisis." Says the WSJ:

Their proposal will be debated today at the Fed’s annual Jackson Hole, Wyo., symposium by the world’s leading central bankers and economists. Harvard’s Kenneth Rogoff, former chief International Monetary Fund economist, will present a critique.

Just in case you missed what destroyed AIG, and what, contrary to the current CEO's desire, will be the reason why AIG will be subsidized by taxpayers for centuries, is selling gluts of CDS on virtually anything that had any risk in it. But the MIT guys think next time around AIG should actually be the Fed:

The two professors say the underlying idea — selling insurance against extreme financial risk

Recent German economic data has been interpreted as indicative of a renaissance in the Eurozone's primary economy. Aside from the fact that Germany is ill prepared to handle its so-called "second credit crisis wave" (the ECB having much less free reign over printing wheelbarrows worth of Euros may have something to do with this), looking purely at GDP components one would note that a primary function of this anticipated growth comes primarily from a mathematical contribution resulting from an increase in net exports. From the Bundesbank's most recent monthly economic report:

According to provisional figures from the Federal Statistical Office, in May the foreign trade surplus was up by 30.2 billion on the month to 39.6 billion. After adjustment for seasonal and calendar effects, it rose from 39.0 billion to 310.3 billion. The value of exports rose slightly by 0.3%, while the value of imports declined by

Archive this one for the funny pages. It has been leaked by administration officials (and sponged up by Bloomberg), that on August 25, when the CBO releases its updated budget estimate, the 2009 deficit is expected to decline from $1.825 trillion to $1.58 trillion. And, get this, one of the reasons for the reduction is the FDIC spending $78 billion less, presumably due to "fewer bank failures than the administration anticipated."

Pardon us, but last time we checked, not only did the FDIC have no cash left in the FDIC, and was effectively in a debtor position vis-a-vis the administration, but of the top 4 banks pending for blow up, Colonial was under (granted with some arbitrarily optimistic loss expectations), Guaranty (GFG) was about to be hawked over to a few siesta loving left midfielders, and Corus (CORS) was about to... well, we are not quite sure what

Cessna maker Textron (TXT), whose stock has gotten bombed over the past year after the very public bashing of any and all private jet purchases, might be in more hot water. After briefly making the press in relation to speculation that it could be an acquisition target, which subsequently turned out to be a large insider trading leak that subsequently led to the suicide of the alleged perpetrator, Textron is now being sued by the City of Roseville Employees' Retirement System for business condition misrepresentations. Among the allegations cited in the suit (09-367 Filed in District Court of Rhode Island), are the following:

• The company accepted orders for business jets from a growing number of customers who were start-up companies or financially distressed fleet operators who either didn't intend to or couldn't pay for aircraft to be delivered.
• Hundreds of orders for Cessna aircraft were subject

Call us old fashioned but financial engineering can only take you so far. For actual economic growth one sometimes needs such old-school components as trade; just ask David Ricardo, who had it right 200 years ago. Yet trade flows over the past 6 months have been collapsing, with both imports and exports taking major hits across the globe.

However, for the best perspective on the sad state of affairs, one only needs to look at the "portal to the west", the (formerly) great ports of Los Angeles and Long Beach.

And if current trends are any indication, a return to normalcy will not occur for at least 3 years, indicating that huge excess capacity will take much longer than expected to be swept out of the system, and the record inventory bounce which everyone is expecting to save future GDP will be much more questionable.

The LA Times

After failing as a regulator, the SEC is now officially an accountant.

In a letter disseminated to "certain public companies", the SEC's Senior Assistant Chief Accountant is providing a gentle yet firm request that companies provide substantially more clarity and transparency when it comes to provisions and allowances for loan losses.

For now, the SEC appears focused on option ARM products, junior lien mortgages, high loan-to-value ratio mortgages, interest only loans, subprime loans, and loans with initial teaser rates.

The question arises: does the SEC realize that if the TBTFs all follow the guidelines of this aggressively worded missive, the entire financial system would be back at ground 0, and Paulson would be brought back from retirement, doing show tunes in front of Congress while getting fast track approval of a 3 page waiver for a $1 quadrillion TARP 2-inifity.

It also puts the tenuous relationship between the regulators and

When Zero Hedge initially looked at the Taylor Rule Estimate for the Federal Fund Rate back in January, the prevailing consensus was that, even then, the Taylor-to-Fed Fund Differential was a whopping 6%. For those who wish to familiarize themselves with the Taylor Formulation, we suggest reading our initial thoughts, but in a nutshell Taylor's thesis is that the FOMC sets it fund rate target according to this rule:

i=r*+p+0.5(p-p*)+0.5(y-y*)

where i is the nominal fed funds rate, r* is the equilibrium real funds rate, p is the inflation rate, p* is the Fed's desired inflation rate, y is the (log) level of real GDP, and y* is the (log) level of real potential GDP. (Various banks introduce coefficients that change the weighing of some of the factors, but in its purest, this is what the original Taylor formulation reads).The default calculation assumes

New developments in that "other" German automotive soap opera. Reuters is reporting that the most insanely leveraged behemoth of an auto-supplier, Continental-Schaeffler has finally managed to close on the terms of a critical $17 billion deal, a critical step which will make the biggest M&A blunder in the last decade (tiny ball-bearing maker Schaeffler's purchase of much, much larger and much more indebted auto supplier conglomerate Continental).

According to Reuters:

Merging Schaeffler and Continental would create an automotive supplier with 33 billion euros in annual sales and around 200,000 employees.

Schaeffler's debt agreement now gives it more breathing room to sort out its finances and tighten its grip on Continental.

"Through this (financing plan) the takeover by Schaeffler is a done deal," said analyst Heino Ruland at Ruland Research.

Continental shares jumped on the news and were up 14.8 percent at 25.55 euros by 1224 GMT, heading the German midcap

HedgeFund.Net has compiled Q2 asset flow trends in the hedge fund industry. Surprisingly, in Q2 the bulk of the increase in AUM (a 5.9% increase to $1.8 trillion) was primarily performance driven rather than coming from investor flows. The trend of outgoing investor flows seems to have moderated but as of June was still negative. It is possible that at the market's peak in July, investors finally starting allocating capital to select performing strategies, just as the market was peaking. And as anyone within earshot of a hedge fund in 2008 will attest, money flows out much faster than in. If the same investors are bitten again once the melt up has no more room to grow, it should get quite interesting.

As for Fund of Funds: the casket beckons.

Q2 2009 asset flow overview commentary:

- The total estimated assets managed by hedge funds, excluding double counting of assets

Our activist friends over at Justice Watch are just getting started. Recently, they filed a lawsuit against the US Treasury to "obtain records related to evaluation procedures used by the government to determine which financial institutions received funds from TARP." The focus of the inquiry is a potentially iniquitous $12 million cash injection provided to Boston-based OneUnited Bank, at the urging of Barney Frank.

The original FOIA had been filed on January 23, 2009, and here were the primary items of information sought: [click to enlarge]

Judicial Watch concludes:

As reported in the January 22, 2009, edition of the Wall Street Journal, the Treasury Department indicated it would only provide funds to healthy banks to jump-start lending. Not only was OneUnited Bank in massive financial turmoil, but it was also "under attack from its regulators for allegations of poor lending practices and executive-pay abuses, including owning

Arthur Levitt, former chairman of the SEC, writes an Op-Ed in the WSJ on HFT, titled "Don't set speed limits on trading" providing the usual justification for the phenomenon, claiming it "contributes significantly to market liquidity, a critical measure of market health and something all investors value."

Alas, this is at the very essence of the debate: while liquidity may be incremental, the question is just how critical is it in light of the creeping slippage costs associated with the monopolization of liquidity provisioning by a select few. The "toll" collected by the few HFT vendors out there has been shown to be a substantial number: is it any surprise that Mr. Levitt vocal defense of an increasingly more spotlighted HFT comes at a time when he as advisor not only to HFT provider Getco but also to primary NYSE PT monopolist Goldman Sachs. Granted, Mr. Levitt does not

When last week we said "look for loans to trade as wide as US CDS, with bonds squeezed to nano bps over zero" we thought we were kidding. We were wrong. Last week the across the board tightening continued, with the loan universe positioned exactly at 400 bps, an 11 bps tightening from the prior week, while bond tightened by 28bps to 733 bps. Yet while there were the rubber band movements tighter across several high beta bond names such as Select Medical and Aeroflex which screamed much tighter and took the index in, for the first time a more substantial widening was also noticed, that of FDC bonds, going wider by 150bps.

As always, look

In order to attempt filling a recent vacuum in public TIC data aggregation and analysis, Zero Hedge is starting a monthly TIC report, highlighting the notable disclosures by the Treasury International Capital System. Tuesday's TIC press release can be found here - in brief:

Net foreign purchases of long-term securities were $90.7 billion.

• Net foreign purchases of long-term U.S. securities were $123.6 billion. Of this, net purchases by private foreign investors were $105.2 billion, and net purchases by foreign official institutions were $18.4 billion.
• U.S. residents purchased a net $32.9 billion of long-term foreign securities.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $19.5 billion. Foreign holdings of Treasury bills decreased $11.3 billion.

Main highlights between the lines:

Foreign purchasers bought a total of $104.2 billion in Long Term securities, consisting almost entirely of treasuries ($100.5 billion). Gross agencies purchased were $5.1

The second quarter of 2009 set a new record for the number of corporate defaults, with 82 non-financial events of default, consisting of 16 names in media and entertainment, 15 in autos and 15 in natural resources, according to a new report published by S&P. The total amount of defaulted debt was $254 billion, far larger than the $102 billion spread among 69 defaults in all of 2008.

Of the second-quarter defaults, the largest portion (about 42%) resulted from distressed exchanges, 28% from missed payments, and 27% from bankruptcies. Distressed exchanges occur when a borrower offers creditors securities or cash in exchange for their debt claim that are worth less than the nominal present value of their original claim.

S&P is still predicting a record amount of speculative-grade defaults over the next 12 months, with an expected peak around Q1 of 2010, hitting a total of 13.9% of issuers some

Too bad small and medium businesses aren't CCC-rated, 6x levered, recent LBOs: they would have no problem obtaining 7% financing.

From the Loan Survey Report:

In the July survey, domestic banks indicated that they continued to tighten standards and terms over the past three months on all major types of loans to businesses and households, although the net percentages of banks that tightened declined compared with the April survey. Demand for loans continued to weaken across all major categories except for

Bloomberg is reporting that Sergey Aleynikov wants a dismissal of his criminal case. Whether or not Goldman (GS), which woke the FBI at 3 am to get on the case stat, will agree with his view is a different point entirely:

At a hearing in Manhattan federal court on Aug. 10, defense attorney Sabrina Shroff said she will seek to persuade prosecutors to enter into a rare “deferred prosecution” agreement. Under such agreements, prosecutors usually agree to dismiss criminal charges provided a defendant doesn’t break the law for a specified period of time.

“I’m seeking a deferred prosecution in this matter,” Shroff, who declined to comment today, said in court on Aug. 10, according to a transcript of the hearing. “I’m looking to show the United States Attorney’s Office that my client never engaged in any improper behavior, was a well-respected employee, was not fired, was not reprimanded, nor were

As part of today's $7 Billion Treasury OMO by the Fed, $5.9 billion of recently auctioned off 5 Years were purchased.

Note the highlighted CUSIPs:

912828KY5 is the 5 Year auctioned off on June

CIT has averted bankruptcy by succeeding to get just above the requisite minimum of acceptances for its tender offer. The Offer expired at 12:00 midnight, New York City time, at the end of August 14, 2009. CIT is paying $875 for every $1,000 tendered as part of the offer. From the press release:

As of the expiration date, 59.81% of the total Notes outstanding were validly tendered and not withdrawn, an amount in excess of the minimum condition. In accordance with the terms and conditions of the Offer, CIT will accept tendered Notes for payment on August 17, 2009,