UPDATE: Letters-of-Fire (unsolicited, from a relative who doesn’t even follow this stuff):
“… I guess the parable of the ant and the grasshopper would have a bit of a different ending in Cyprus now.”
I like Angela, she’s a real scientist and because of this perhaps the only major politician who really gets it about Schenectady. But if she insists on marching around with a big sign reading Deposits Aren’t Sacred, she may end up having to close down Bayreuth.
Consider the Agency Debt holdings at the NY Fed, numbers we’ve been following here at Doom for several years. Agencies held in trust for foreign central banks peaked at $890.748 billion on July 16, 2008, just nine days after Lehman’s Bruce Harting suggested that FASB’s modifications to their Rule 140, perhaps ending the QSPE as we then knew it, would cause Fannie Mae and Freddie Mac to require more capital. Harting’s Avalanche was touched off on 7/7 ’08, and resulted in the foreign central banks divesting themselves after that date of agencies at about the same frantic pace that they were buying the stuff before …
That is, until the first couple of weeks of January 2009, late in the Bush / Obama Interregnum, when their selling spree came to sudden halt. Doom noted at the time that this is when the Fed commenced unprecedented purchases of MBS on their own account, and it’s also when Re-Remics were first allowed into the TBA market (basically recycling old mortgage deals into what had been a market for pristine new stuff).
Now on November 15, 2012, early in the Obama / Obama Interregnum, we suddenly learned that the reported pause in cenbank reduction in agencies holdings was largely a mirage, a product of the way the Fed was reporting the number (on the 15th they changed to “current face value rather than original face value”). The most recent (corrected) number is $302.286 billion, just 34 percent of the peak value. Meanwhile in a little over four years the Fed’s own holdings have swelled from zero to $1,085.507 billion with a recent acceleration in purchases (the $trillion mark having been achieved just five weeks ago) to support the US housing market’s recovery. So over about the course of Obama’s first term the Fed has gone from no holdings of MBS at all to about three and a half times the holdings of all the foreign central banks combined.
And a lot of this stuff will be legacy deals from the historic US housing bubble years …
which enjoys powerful support, but absolutely no guarantee, from the US Treasury.
And the FRBNY is also the custodian for much of Germany’s sovereign gold bullion holdings.
And their underground gold vault seems to be co-located with someone else’s underground gold vault.
Now electronic CoLo at Mahwah has been a recurrent theme over the last few years, so perhaps physical CoLo is getting ready to influence the next few.
If Angela somehow manages to transmute a large chunk of the receipts from Germany’s post-Marshall Plan industrial miracle into a big block of equity in America’s central bank, she won’t just be remembered as a chemist; she’ll be remembered as the greatest alchemist who ever lived 😉