Fed Exit Strategy, Bizarre T-Bill Fans and WTF NY Fed?
TBTF? Suck it, this asshat is supposed to figure out how the Fed withdraws billions - trillions? Who knows anymore - from the economy and because he's behind the comfortable firewall of the NY Fed (regional, not government, so there's no cracking those books, kids), he can do whatever he wants.
The Federal Reserve pumped $1 trillion into the financial system during a year of harried efforts to rescue the economy. Brian Sack's job is to figure out how to get the money back out.
Mr. Sack, 39 years old, is an economist who runs the markets group at the Federal Reserve Bank of New York. The group runs the Fed's trading, making it the bridge between the marble corridors of the Federal Reserve in Washington and the bustling trading floors of Wall Street.
In normal times, it buys and sells Treasury securities to influence the level of interest rates. During the crisis, it hatched a raft of complex new programs that inserted the central bank more deeply than ever into private markets -- purchasing mortgage-backed securities, extending commercial-paper loans to blue-chip companies and reviving asset-backed securities markets.
"The operational challenge of getting this job done is amazingly difficult," says Laurence Meyer, vice chairman of Macroeconomic Advisers, an economic consulting firm where Mr. Sack formerly worked.
The decision on when to soak up the money and to raise interest rates comes from the Federal Open Market Committee, which meets this Tuesday and Wednesday. It isn't expected to make a move at this meeting, but Mr. Sack's job is to implement its decision when it does.
"Nobody wants to be the guy who says [to other Fed officials], 'You can't do this because I've got operational constraints,'" says Dino Kos, a managing director at Portales Partners LLC who ran the market group from 2001 to 2006.
As much as I would love to cry "Que diabolical!" I can't imagine that one person can really pull this off, no matter how much scandalous central bank machinery he's got at his disposal.
If one were of a conspiratorial mind, one might conclude that the Fed has already advanced its reverse repo testing. How else could you explain an increase in Treasurys on non-Fed bank balance sheets? No one else wants this crap.
U.S. banks are buying Treasuries at the fastest pace since just after the last recession, helping shore up demand now that the Federal Reserve has finished purchasing $300 billion worth to hold down borrowing costs.
Even after banks including Bank of America Corp. and Capital One Financial Corp. increased such investments 26 percent to $125 billion in the 12 months through June, they have only about 1 percent of their assets in Treasuries, Fed data show. That’s down from the 8.5 percent average for the year after the past five recessions. Banks would have to buy $1 trillion more to reach past levels, so demand “could remain quite high for some time,” Barclays Plc said.
Banks including JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. are recapitalizing an industry that remains hesitant to take risks as joblessness approaches 10 percent. They’re profiting from a steepening yield curve, buying longer- term Treasuries with money acquired at short-term rates kept low by the Fed’s near-zero benchmark. That may temper yield increases amid record sums of new U.S. debt, keeping borrowing costs down even as banks lend out the smallest portion of their deposits in 15 years.
“Banks will continue to purchase Treasuries for the next several quarters, at least until the end of 2010, as they continue to be reasonably risk averse,” said Ira Jersey, an interest-rate strategist in New York at RBC Capital Markets, which trades with the Fed as a primary government-debt dealer. The demand will help keep 10-year yields, at 3.41 percent today, below 4 percent through 2010, he said.
Well that's fucking bizarre.
Stung by the financial crisis, companies are holding more cash -- and a greater percentage of assets in cash -- than at any time in the past 40 years.
In the second quarter, the 500 largest nonfinancial U.S. firms, by total assets, held about $994 billion in cash and short-term investments, or 9.8% of their assets, according a Wall Street Journal analysis of corporate filings. That is up from $846 billion, or 7.9% of assets, a year earlier.
Here, come get some of these super safe Treasurys. I can't believe they are actually buying it. Literally.