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Pushing Back Against Oligopoly Rule: This Time It's Telecom

Wall Street profits from trades with Fed
By Henny Sender in New York

Published: August 2 2009 23:04 | Last updated: August 2 2009 23:04

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.

EDITOR’S CHOICE
Wall Street benefits from Fed and Treasury - Aug-02Editorial: The value of bank independence - Aug-02Opinion: Trichet should convene a trip to the beach - Aug-02In depth: US banks - May-07In depth: Central banks - Mar-09However, 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.”

However, another official familiar with the matter said the central bank “has heard that dealers load up on securities to sell to the Fed. There is concern, but policy goals override other considerations.”

Barney Frank, chairman of the House financial services committee, said the potential profiteering may be part of the price for stabilising the financial system.

“You can’t rescue the credit system without benefiting some of the people in it.” Still, Mr Frank said Congress would be watching. “We don’t want the Fed to drive the hardest possible bargain, but we don’t want them to get ripped off.”

The growing Fed activity has coincided with a general widening of market spreads – the difference between bid and offer prices – as the number of market participants declines. Wider spreads enable banks, in their capacity as market-makers, to make more profit.

Larry Fink, chief executive of money manager BlackRock, has described Wall Street’s trading profits as “luxurious”, reflecting the banks’ ability to take advantage of diminished competition.

“Bid-offer spreads have remained unusually wide, notwithstanding the normalisation of financial markets,” said Mohamed El-Erian, chief executive of fund manager Pimco in Newport Beach, California.

Spreads narrowed dramatically during the years of the credit bubble.

Brad Hintz, an analyst at AllianceBernstein, said he doubted that spreads would ever return to those levels, a development that could be pleasing to the Fed.

“They want to help Wall Street make money,” he said.

Additional reporting by Brooke Masters in Washington
Copyright The Financial Times Limited 2009

The Implications of Russia's Declining U.S. Debt Purchases

US hyperpower LOL you benn hanging around the republicans too long we are a burning rome on its last legs and the banks are making sure they loot all they can before it collpases


On Jul 20 05:46 AM User 353732 wrote:

> 1. Russia hardly has the excess foreign reserves(at current oil,
> gas, and non energy-commodity prices) to keep buying dollars, esp
> since the Russians have been even more blatantly public than the
> Chinese in seeking to demote the dollar as the sole reserve currency
>
> 2. The Russians do not need US markets (while the Chinese still do)
> since they produce very little besides energy and minerals that the
> US wants to buy and there are global markets for Russia's exports
> ( commodities, weapons and nuclear technology) so Russia has the
> easiest task among major nations in decoupling itself from the dollar
>
> 3. For geo-strategic reasons Russia is keen to hasten the dollar's
> decline(i.e the decline of the US as a hyperpower) since the net
> benefits to Russia from a debased and discredited dollar exceed the
> investment losses: Russia, more than any other nation, will benefit
> from a global flight to commodities, including and especially oil
> and gold.
> 4. Russia is trying both to re-emerge as the leading geo-strategic
> opponent of the US(hence its unpleasant alliances with the most repulsive
> regimes in the world) and portray itself as the champion of the Global
> South in resisting US+EU attempts to impose their agenda on the developing
> world(eg carbon suppression; nuclear technology controls ; limiting
> or preventing bioengineered agricultural innovation); as such it
> can hardly ,at the same time, be viewed as a substantial holder of
> dollars(it must try to lead by action as well as words)

Q1 Earnings Season Preview - Why 2009 Is Not 2008

Fred you are awesome.
I love when people get called out. If you will note it looks like the market has essentially moved almost sideways while earnings have dropped. I kind of see a pattern, of dropping and then building into earnings season. if earnings are Ok it will continue and we have bottom. if not we don't. I also hate the Bull folks at every corner. At least the guy should put a disclaimer saying how many times he has missed it before.

That being said my own technique noted bottom on commodities and euro. Not equities. My target is drop of 70% from peak, when brazil and emerging economies retest their lows we will all be even!!!

Weekly Street Sentiment: Sometimes the Trend Is Not Your Friend

when everyone bullish sell. when everyone bearish buy. look back three weeks. it was low, therefore buy. now up therefore sell. let go back down some. buy.

The Bull Run Begins This Week

the market is going to bounce around from 8 thousand to 9 thousand for a long time. It may drop below this level if all the governemtn intervention and propaganda fail. There is little doubt in my mind that the government has told the financial industry to keep the dow above 8 thousand. After all where to you think all the tarp money is going?. They will contiune to try and support the markets until enough financial healing has happened that the market can really rally.