ObaManipulation of the Markets...

Discussion in 'Economics' started by Moc Yeah, Jun 14, 2009.

  1. I always wondered where the other 90% of the stimulus money was hiding...

    State Street: Is It Trading for Federal Accounts?


    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.
  2. Tyler Durden, you're my hero!
  3. The first rule about trading on behalf of federal accounts... we don't talk about trading of federal accounts... we stick one person in a private room and lock the door.. then we waterboard him til he keeps his mouth shut.

    ObaManipulation for Change!
  4. Market down 150. I guess the guy that is cocooned and isolated" takes 3 day weekends over the summer. I'm sure Obama will get his Azz into work by days end to buy up the market . lol
  5. It makes sense that the government would try to manipulate the markets upward. Consumer sentiment is directly tied to the performance of the market... so an UP market means consumers are less likely to sit on their wallets, in all related regards.

    Of course, the markets will go along with this for a while (sometimes, quite a LONG while)... but at some point they "call bullshit" and decline back to reality.
  6. tradersboredom

    tradersboredom Guest

    gov't plans are to ban market manipulaton and leveraging and cracking down on hedge funds .

    prop trading, program trading, daytrading industry could be obsolete with tax proposals and no leveraging allowed in the markets. etc.


    proposals possible.

    1.5:1 leverage on fx
    no leverage on futures for speculators, futures only for hedgers who actually take delivery
    .002 tax on stocks,options,futures.
    no intraday leverage on stocks.

  7. Too radical. Won't be accepted, therefore won't work. If Obama can FORCE these provisions, business will move to off-shore exchanges... yet another example of greed "cutting of your nose to spite your face".
  8. tradersboredom

    tradersboredom Guest

    this isn't radical.
    FINRA is proposing the FX 1.5:1 leveraging.

    and the tax is already or proposed in many countries with exchanges.

    the regulations in off-shore exhanges have even more gov't regulations.

    proposing trading tax and leveraging regulations is same as ban on speculation and market manipulation. wall street will be bowing down to gov't regulators.

  9. Not trying to argue what the government "will do"...

    Just pointing out bad policy with unintended consequences. FX "1.5:1" leverage limit will KILL currency hedging... and that's a BIG deal these days with governments run amok!

    Can't "take delivery" with stock index futures.. they settle in cash. Proposed would KILL them and their hedging too... dramatically change our markets.
  10. I totally agree. This big brother wanna be government has to relax. I guess the term free market economy won't apply for another 3 years and 7 months. lol
    #10     Jun 15, 2009