Rigging Treasury rates by the New York banks

I am getting into some detail about how the treasury sales network managed to rig the entire yield curve; costing the taxpayer some 150 billion a year.  Let us start with this chart.  We have two lines, and oddly they match.  The blue line iare the excess reserves placed on deposit by large private banks who are reserve memebers.  Also I have the red line which is the amount of treasury notes and bond purchased by the Federal reserve itself during the QE.  Notice they match.  The private member banks earn some .25% on those reserves. Who are these bankers?

Treasury Advisory Committee:

You can see many of them on the Treasury advisory committee. That committee actualy advises the Treasury on what notes and bonds to buy and in what quantitites.  On the committee we see Morgan  Stanley, PIMCO, Credit Suisse, Blackrock, JP Morgan and Goldman Sachs, naturally, Citigroup and Bank of America; plus a few others.

Primary dealers:

And we have the primary dealers who take treasury issued bonds and notes directly and provide the sales network. Who are they? The Fed has a list.

Bank of Nova Scotia, New York Agency,BMO Capital Markets Corp.,BNP Paribas Securities Corp.,Barclays Capital Inc.
Cantor Fitzgerald & Co.,Citigroup Global Markets Inc.,Credit Suisse Securities (USA) LLC,Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.,Goldman, Sachs & Co.
HSBC Securities (USA) Inc.,Jefferies LLC
J.P. Morgan Securities LLC,Merrill Lynch, Pierce, Fenner & Smith Incorporated Mizuho Securities USA Inc.,Morgan Stanley & Co. LLC
Nomura Securities International, Inc., RBC Capital Markets, LLC
RBS Securities Inc.,SG Americas Securities, LLC,TD Securities (USA) LLC,UBS Securities LLC.

I have boldfaced the banks who sit in both groups.  All of the boldface banks are also members banks of the fed.  These banks get twice the market value on the deposits that is offered on the market, and as you can see from the chart, whenever the Fed buys a security, these bankers sell and deposit the proceeds in their higher priced Fed account. That account yield, .25 is about twice the market over night rate or .12, generally.

Portfolio theory:

These banks set their entire portfolio, (short to long  holdings) to match the maximum gain  they set the portfolio to the,25% yearly rates guaranteed by the Fed.  Any long term holdings of Treasuries will be a compound rate from the short rate they get from the Fed.  But since they both advise the Fed, and are the wholesalers of Fed securities that can guarantee that their portfolio network ensures equalized gains across the spectrum, equalized by compound interest.  They make the maximum total amount dictated by their special rate on deposits. They make a finite log trading network!

They have one other advantage:

They know exactly when the Treasury will have to roll over huge amounts of debt, and they have large investments in the stock market. Here we see that the Fed purchases of treasuries from the market match the SP500 stock price, just like they match the excess reserves.  So the rate rigging scheme involves the stock and bonds both.

They have a large control over the presidential recession cycle, and with their close eye and control over Treasury borrowings, they know exactly when the debt bulge is coming.  That is the moment now, treasury is having a hard time paying the interest, and liquidity is rising as these banks know the point in the cycle for large yield capture has come. 

How much to they skim?

Well, to a first approximation they double their return from what the free market would guarantee. But this is an over statement because the -pLog(p) is not linear.  More than likely, the US taxpayer is on the hook for about $150 billion a year more than need be, or nearly a trillion over the since years this skimming game has been going on.


Why doesn't treasury just flood the market with one year notes?

That is the part I am working on, I do not quite get it.  Two possibilities, Jack Lew the secretary of treasury is an idiot or he is in on the game.  Treasury may just be intimidated. The advisory committee advised recently advised them not to do that but to acquire an additional cash balance of %500 billion by selling longer term notes.  The large banks are likely threatening to break the economy if the Treasury drives short term rates up. The main effect would be to crash the stock market, and that means crooked Senators, like Schumer of New York, will want a warning. This whole mess is actually one of the biggest scandals in US government history.