Thursday, April 1, 2010

What Is the Federal Reserve Up To?

Something is brewing at the Federal Reserve, that much seems certain.

The Fed's buying of agency bonds and MBS backed by agencies was supposed to have ended as of March 31. Then, why does the Federal Reserve need money now, to the tune of $125 billion?

There were Treasury auctions in March whose only purpose was to raise necessary funds for the use by the Federal Reserve. (My other blog,, tracks Treasury auctions. I noticed them as I created the posts. All in all, Treasury sold a boatload of short-term bills in March.)

In March, Treasury Department auctioned $125 billion worth of CMB (Cash Management Bill) specifically for SFP (Special Financing Program) for the Federal Reserve:

  • March 3: 56-day CMB, $25 billion
  • March 10: 56-day CMB, $25 billion
  • March 17: 56-day CMB, $25 billion
  • March 24: 56-day CMB, $25 billion
  • March 31: 56-day CMB, $25 billion
Every single week in March, Treasury raised money for the Fed. The last time this happened was from March to August, but at most it was 3 special CMB auctions per month.

(Hmmm. March to August, 2009. Wasn't that when the stock market kept going up and up for no good fundamental reason, when every trader shorted or wanted to short the market and got burned?)

If the various lending programs at the Fed are winding down or have wound down already, why does Bernanke need $125 billion now?

In another peculiar movement, New York Fed decided yesterday to unilaterally disclose what was held in Maiden Lane (created to hold garbage from Bear Stearns), Maiden Lane II and III (created to hold garbage from AIG). These "investments" total about $65 billion.

The Fed also has about $81 billion in credit extended by NY Fed to "eligible borrowers" including AIG.


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