Saturday, 22 May 2010

The Perfect Game

“But if you wish to remain slaves of bankers and pay the cost of your own slavery, let them create money and control credit.”

Josiah Stamp, Director, Bank of England, 1928

"Perfect Quarter’ at Four U.S. Banks Shows Fed-Fueled Revival"

This was expected given the Fed is depending now on banks to buy treasuries and borrowing at zero in the process. It is like shooting fish in a barrel.

"The gap between short-term interest rates, such as what banks may pay to borrow in interbank markets or on savings accounts, and longer-term rates, known as the yield curve, has been at record levels. The difference between yields on 2- and 10-year Treasuries yesterday touched 2.71 percentage points, near the all-time high of 2.94 percentage points set Feb. 18."

“The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks,” said Christopher Whalen, managing director of Torrance, California- based Institutional Risk Analytics. “It’s a transfer from savers to banks.”

The system is truly morally bankrupt because the losses are socialized.

"The notion that banks privatize profits and socialize losses dates at least to the 19th century, as in this 1834 quote of Andrew Jackson:

"I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank. ... You are a den of vipers and thieves."

President Andrew Jackson, 1834, on closing the Second Bank of the United States;

"In 1835, Jackson managed to reduce the federal debt to only $33,733.05, the lowest it had been since the first fiscal year of 1791. President Jackson is the only president in United States history to have paid off the national debt. However, this accomplishment was short lived. A severe depression from 1837 to 1844 caused a tenfold increase in national debt within its first year."

"It was like a perfect storm for the fixed income market where you had very low volatility, tightening spreads and a buyer of last resort in the Federal Reserve,” said Paul Miller an analyst at FBR Capital Markets in Arlington, Virginia. “Even if a trade was going against you, you could just dump it on the Fed very quickly.”

The trading-powered gains may not last. At the end of March, the Fed wound up a program in which it had bought $1.25 trillion of Fannie Mae, Freddie Mac and Ginnie Mae home-loan securities. The purchases had helped drive debt buyers from U.S. mortgage bonds with government-supported guarantees and into riskier debt, helping banks that were holding or trading it."

There are more details on the perfect game in the below article from Seeking Alpha:

"Load up on the stuff you know the Fed is going to be buying, sit back, wait, collect coupons as the Treasury continues to funnel money into the bankrupt entities, and rack up trading gains as the Fed drives the prices higher. Bill Gross at PIMCO even gave us this playbook last year; he advised, "Shake hands with the Government.""

David Goldman in his excellent Inner Workings blog, sums it up nicely:

"The banks finance the governments, with money that they borrow from the governments. That’s why many banks showed a profit during every single trading day of the first quarter: with a steep yield curve and nearly zero-cost funding, you have to go out of your way to lose money."

The trend shows no sign of abating; when we get the Treasury TIC data for April at the end of this month, we will find out whether foreign banks continue to shovel money into the US Treasury market at the rate of $50 to $60 billion per month.

"This symbiosis means that the banking system is in effective government control. As my friend Michael Ledeen–an expert on Italian fascism among many other fields–this is “control without ownership,” or fascism, rather than socialism. Governments and banks will wrangle over the spoils. When the banks look fat the government will use them as a political whipping boy or milk them for taxes; when the banks’ holdings of government securities threaten to topple them, as in Europe last week, the governments will pledge a trillion dollars–and borrow it from the banks."

"Running a casino is like robbing a bank with no cops around." Ace Rothstein (Robert de Niro) in the movie Casino by Martin Scorsese

"Running an investment bank is like robbing a casino with no gaming regulators around."
Quote by Martin T

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