Saturday, March 5, 2011

"The Free Market Death Panel" and Fail-to-Deliver US Treasuries

We are being robbed by Wall Street banks every single day and we don't even know it.

There was an article on Zero Hedge by Miss America aka Rich Hartmann on Friday (3/4/2011) titled "The Free Market Death Panel". "A nice sensationalism," I applauded, and started reading the article. As I read, I kept thinking "This can't be true! Just can't be..."

After all that's happened since the cascading market crash in October 2008, I thought I was immune to any surprise coming from banksters - mortgage fraud, foreclosure fraud, securitization fraud, bailout fraud, high-frequency trading fraud, regulatory capture (revolving doors of Wall Street to Washington), sovereign capture (Libya's favorite banker is J.P.Morgan Chase) - everything they do is fraud, and action to cover up the fraud (that's where the "capture" comes in).

But in the ZeroHedge article, Miss America / Rich Hartmann talks about the Treasury Market Practices Group (TMPG) at the Federal Reserve Bank of New York (the same bank that does POMO almost every single day to shower money on the Primary Dealers), and how the Group has enabled the same Wall Street banks to swindle potentially billions of dollars from pension funds and mutual funds where the rest of us keep our dwindling savings.

How? By shorting the Treasuries and deliberately failing to deliver them.

The article gives a hypothetical example of how a broker screws a pension fund and ends up collecting money from the pension fund:

BrokerX sells 2 lots of 5mm shares to pensionsuckersfund (PSF) of cusip 912828XXX.
BrokerX then buys 10mm shares back from pesionsuckersfund (PSF) at a small loss in the same day of the same cusip 912828XXX.

PSF’s Net buys = $9,999,950 ($4,999,975 + $4,999,975)
PSF’s Net sells = $10,000,000 (for a $50 gain. These daily turns ranging to 50million par are extraordinarily commonplace, especially for a flooded Treasury Market.)

Sounds good for the pensionsuckerfund as they just made $50. …but here’s the rub:

In the real world of street settlements, BrokerX can now withhold on ACTUALLY delivering 1 of the 5mm pieces to the pensionsuckerfund. Since BrokerX is short, for whatever reason, BrokerX does not deliver the 2nd piece of 5mm. In MANY scenarios, the pensionsuckerfund will now wind up failing on the larger 10mm because they needed both 5mm pieces to position the trade. (Duh!! Thus a “pair-off/turnaround”.) …but BrokerX would never “intentionally” fail to deliver something! (wink wink)

So What!!!

So you say: “But why would Wall Street banks care about that those small claimable amounts!?!?!” They don’t care about that 1 trade. They care about the net of the trades! You see, this is the market! These types of treasury flips are done all day. The entire MBS market of TBA trades equate to thousands of trades netted out to small net gains and losses. This is what they do.

In the meantime their nice little $1,000 gains, in a tightly traded market (With razor thin margins) could add up. How?!?!?! On a daily basis there are $3-$6bilion in fails! Let me repeat!!! $3,000,000,000.00 to $6,000,000,000.00 in fails!!! …and that equates to $250,000.00-$500,000.00 in potential claims daily! EVERY DAY!!!

And with a huge spike ($20-90 billion per day) that seems to happen once in every quarter, potential claims may run into a few billions per year.

And this TMPG has made matters worse for the pensionsuckerfund (and better for the BrokerX) by "actually writing in their “suggestions” that BrokerX does “NOT HAVE TO ACCEPT ANY PARTIAL DELIVERIES”.

So BrokerX can actually reject your partial delivery of the 5mm shares you do have, just to get the claim on something they are intentionally botching! So that loss of $50 actually turns into an $850 gain!

Get it? The process is, as I understand:

  1. BrokerX sells 2 lots of Treasuries, $5M each, to Pensionsuckerfund. BrokerX then only delivers 1 lot, $5M.

  2. Pensionsuckerfund then sells $10M Treasuries it just bought from BrokerX, back to BrokerX, at a slight profit of $50. Problem: it only has $5M Treasuries at hand.

  3. BrokerX says No to partial delivery, and insists on $10M delivery. Pensionsuckerfund cannot deliver.

  4. BrokerX makes a claim for the fail, for $900. Net $850 profit.

Rinse and repeat, by Wall Street banks, every day, every week, every month, every year.

The TMPG has essentially created a new way for Wall Street banks to rob in the broad daylight with their victims unaware that they're being robbed. Or "raped", to use Miss America's word.

Miss America / Rich Hartmann's final words:

We all know that Wall Street has been raping America for years! Finally realizing this, the government stepped in! …and they made Wall Street put a condom on!

Groups like the TMPG are not out to protect us. They don’t stop the rape. No, they are actually protecting Wall Street from the virus that we have become.

…and I am here to spread the disease and spread the word.

Go read the whole piece. A must read, IMHO.


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