SP Futures Hourly Chart at the Close

The Fed's Decision: PRINT

To net today's FOMC statement for you, the Fed has made an aggressive commitment to monetary expansion through its balance sheet to support the financial system.

What was particularly repugnant was the co-ordinated actions in the market ahead of this announcement. This included a major bear raid on the precious metals, and the panic-covering of the financial shares before the official announcement. The cure of the crisis ought not to be an occasion for looting, fraud, deception, and personal enrichment by insiders who in many cases caused the problems which are facing today.

The US government is engaging in the same artificial tactics that lead to the tech bubble and the housing bubble. They are artificial because they are not accompanied by systemic change and meaningful reform. We are shooting the patient with morphine so they can go back to work without treating the disease.

The next phase of this financial credit crisis may be take down the US Bond and the dollar. That is what is known as a financial heart attack.

Release Date: March 18, 2009
FOMC Statement

For immediate release

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract.

Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession.

Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these
securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.

Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.

The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

The Hypocrisy of Barack Obama, Tim Geithner, Henry Paulson, and Christopher Dodd

This issue of the AIG bonuses raises concerns about conflicts of interest since the Financial Products Division of AIG was a large contributor to both President Obama and Senator Dodd.

It also gives fuel to the speculation that the retnention bonuses being paid to the AIG executives, some of whom have already left, are 'hush money' over the details of the payments of enormous sums of bailout money to politically connected businesses such as Goldman Sachs, who are also substantial contributors to both parties.

True or not, the failure of the Treasury Department to execute in this matter is alarming, and the lack of transparency by the Obama administration and the Democratic leadership is discouraging, if not appalling.

McCauley's World

Senator Christopher Dodd’s office recently announced that, “Democratic Sen. Chris Dodd, chairman of the Senate banking committee, demanded a full briefing from the Federal Reserve and the Treasury on why clauses weren’t attached to the four various AIG bailouts to halt bonuses.”

Yet the Senator well knows that while the Senate was constructing the $787 billion stimulus last month, Dodd added an executive-compensation restriction to that very bill. The provision, now called “the Dodd Amendment” by the Obama Administration, provides an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009” — which exempts the very AIG bonuses Dodd and others are now seeking to tax.
http://www.foxbusiness.com/story/markets/industries/finance/dodd-cracks-aig—time/

Obama & Dodd Were Friend’s Of AIG Before AIG Was Their Enemy

Obama may be grandstanding about AIG’s bonuses now, but it’s worth noting that Obama himself is the second biggest benefactor of AIG political contributions. Second only to Senator Chris Dodd, who is quietly trying to tip-toe away from legislation he inserted into Obama’s “stimulus” spending spree that protected AIG’s bonuses.
http://www.kxmb.com/News/Nation/346030.asp

Key Congressman tried to alert Treasury about the AIG bonus issue "six or seven times" in the past weeks.

Kanjorski: Treasury and Administration Knew of AIG Bonuses for Weeks

Edward Liddy is the government appointed Chairman of AIG during its bailout phase.

Edward M. Liddy is currently the chief executive officer of American International Group (AIG), where he succeeded Robert B. Willumstad in September, 2008. Upon taking the position of CEO at American International Group, Mr. Liddy had to resign his board position at Goldman Sachs.

This September meeting was the key decision point on bailing out AIG. As we have reported earlier, the ONLY non-official present was Lloyd Blankfein, the Chairman of Goldman Sachs, a major counterparty at risk with the AIG Financial Products Division.

And lastly, we ought not to overlook The Real AIG Scandal - Slate

Brokers Recalling Loaned Shares in Citi

Since this morning Bloomberg reports that major brokerages have been calling in the loaned shares that have been used for legitimate short sales in Citigroup.

This in part explains the rally in Citi today, as the shortsellers cover their positions ahead of a 2:30 PM deadline today by which they must return the borrowed shares.

It does seem rather calculated, particularly its conjunction with the Federal Reserve announcement.

We have not seen this in the general news, just on the Bloomberg TV analyst reporting.

There is the implication that this is a calculated market operation being conducting among big traders and the major brokerage houses who hold the shares for borrowing from customer accounts. Marketwatch seems to imply that this is being precipitated by 'the authorities.'

Nice timing to help bolster the financials after the FOMC announcement. This has the Larry Summers/Robert Rubin touch.

It would be a good thing indeed if the Obama Adminstration did something meaningful to curb naked short selling and enforce the existing regulations. But if they are doing so for only their favorite companies, then this is not market regulation, it is crony capitalism and insider trading.

Seeking Alpha

Citigroup Inc. – Shares are being squeezed once again today and the company has a valuation some 23% higher today with shares stretching above $3.00.

Intrigue continues in the June 5.0 strike options where arbitrageurs are using conversion plays that typically land a credit to take advantage of the squeeze. The volume in that line has more than 150,000 contracts trading both sides today with puts bought and calls sold when investors can position long of the stock.

Earlier in the week rumors did the rounds that the authorities might be on the hunt for hard-to-borrow stock certificates in select financial names.

This in itself has created a surge at AIG and Citigroup as desperate short-sellers try to cover their positions. The conversion trade could be established earlier in the week for a credit of 20 cents, but given the near-panic buying in the stock has shifted to a 1.10 cost to traders.