FED Lies

by Larry Levin

How many times have you heard the Fed chairman, Ben Bernanke, tell Congress that the Fed has never lost money on its operations, loans, etc? The implied implication is that it will not lose money on any of its current (multi $trillion) swaps, loans, investments (which are illegal), etc. That lie, however, may be unraveling.

Lawlessness Begets Lawlessness, by Karl Denninger
Nice 7% rally yesterday eh?

A few minutes after the close, we got this:

WASHINGTON (MarketWatch) -- The Treasury and the Federal Reserve released a joint statement Monday that spells out the different responsibilities of the two agencies in dealing with the financial crisis. In the most noteworthy part of the agreement, Treasury said it would take over the Fed's holding of assets of Bear Stearns and American International Group. Treasury did not say how it would pay for these programs and said it would only make the move "in the longer term and as its authorities permit." The Fed's investments in the three funds, known as Maiden Lane, totaled $72.21 billion in the latest week, according to Fed statistics.

Yes, those three "Maiden Lane" equity investments that The Fed is not authorized to make at all, and which Ben Bernanke assured us as recently as January would not lose money.

The truth?

- Note: Maiden Lane fund hold Bear Stears and AIG assets. Additionally on 1/20, the WSJ noted that at the end of Sept, Maiden Lane had a value of $27B and the same article noted that analysts expect the value of the Maiden Lane assets to have dropped more in Q4. Furthermore on 3/17, it was disclosed that Maiden Lane III paid $62B to buy CDOs and thus settle derivative transactions for AIG with 16 investment banks in return for securities worth less than $30B.

Uh, the very same Fed that took an intentional $30 billion loss without appropriating the funds via The House (Congress) as required by The Constitution and now intends to pass that $30 billion loss directly to the Treasury (and the taxpayer), just a couple of months after telling us that they'd take no loss?

The Fed put this ditty out to go along with it:

.....

2. The Federal Reserve to avoid credit risk and credit allocation
The Federal Reserve's lender-of-last-resort responsibilities involve lending against collateral, secured to the satisfaction of the responsible Federal Reserve Bank. Actions taken by the Federal Reserve should also aim to improve financial or credit conditions broadly, not to allocate credit to narrowly-defined sectors or classes of borrowers. Government decisions to influence the allocation of credit are the province of the fiscal authorities.

This, of course, is why they entirely ignored that charter and took three separate equity positions including one of them in which they took an intentional loss while Ben Bernanke appears to have lied to Congress and The American People, stating that there had been and would not be, in his best judgment, any loss at all?

How do you square that with taking an intentional loss by overpaying for CDS on purpose that at the time of acquisition have less than half of the value you spend in dollars?

Let's be clear: Ben Bernanke has repeatedly stated that The Fed "only" makes fully-collateralized loans. THIS IS A LIE; the "Maiden Lane" facilities are equity ownership positions created and funded by The Fed! The fact of the matter is that The Fed has no authority under The Federal Reserve Act (or any other existing law) to do anything other than make fully-collateralized loans (even in "unusual and exigent circumstances"), yet they have in fact violated those restrictions with impunity since the failure of Bear Stearns.

Lying to Congress is already punishable, but we must go much further.

We need a special prosecutor - now - to investigate this and see if there are criminal sanctions that can be brought against Bernanke and the rest of The Federal Reserve Board, and while we're at it, Congress needs to revoke The Fed's charter or rewrite The Federal Reserve Act so as to provide for specific severe criminal penalties for actions that clearly exceed The Fed's charter.

Enough is enough.



Previous Day's Trading Room Results:

Trade Date: 3/24/09

E-Mini S&P Trades*
(before fees and commissions):


1) PP buy @ 8:40am at 806.00 = +1.50 (1 lot)

2) VA sell @ 10:30am at 812.75 = b/e (1 lot)

3) IDVA sell @ 10:50am at 812.75 = +2.00 (1 lot)

4) IDVA sell @ 12:10pm at 816.25 = b/e (1 lot)

5) FT buy @ 12:50pm at 813.75 = b/e (1 lot)

6) Algorithm positions (6)...combined Secret's and Algo total...+5.75


Electronic (YM) Mini-Dow:

1) Sell @ 10:00am at 7,643 = -2 (1 lot)...-$10.00



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