This Thursday was the historic day. The Feds made an announcement that was so stunning that I was puzzled how to write about that. But now I think you just read it yourself first:

Press Release
New York Fed Announces Modifications to Terms and Conditions of Term Securities Lending Facility
March 20, 2008  

The Open Market Trading Desk of the Federal Reserve Bank of New York (“Desk”) has engaged in extensive consultation with bagholders, potholders, potsmokers, gangbangers and their loser clients on the overall design and technical features of the Term Shit Sorting Facility (“TSLF”) since it was announced on March 11, 2008. As a result of this consultative process, the Desk is announcing a few modifications to the previously released program terms and conditions, as well as providing more details on the parameters of the first auction, scheduled for Thursday, March 27, 2008 at 2:00 p.m. Eastern time.

The Desk will conduct the first TSLF shit sorting on March 27. The dumping size will be $75 billion for a term of 28 days or whatever.

The first TSLF sorting will be a loan of Trashury against Schedule 2 shit rather than against the Schedule 1 trash previously proposed. To facilitate the operational processes of the facility, the Federal Reserve has also expanded the list of eligible collateral for Schedule 2 to include dogshit (CMOs) and AAA/Aaa-rated commercial catshit (CMBS), in addition to the previously announced AAA/Aaa-rated private-label horseshit (RMBS) and OMO-eligible collateral.

In short, this never happened before, even during the Great Depression. Who knows, maybe that’s why GD happened, aside other things. But never ever before the Federal Reserve was consciously exposing itself to major losses.

Lets think, what is exactly the Federal reserve? It’s a bank that holds treasury bonds, which are just uncollected taxes. You can read about Fed holdings here. It prints money that are representing those holdings. What are money? Its Federal Reserve paper that can be used to pay taxes. So essentially money are derivatives of paid or unpaid taxes managed by Fed as an underwriter, the same way as CDOs are derivatives that represent unpaid mortgages with some bank (for example Bear Stern) as underwriter (ups). So, essentially, when Feds are swapping treasuries for CDOs dollar is swapped for CDOs and Feds are becoming Bear Stern. Capite?