Hot off the Fed’s non-monetary printing press is the announcement of a change to the criteria of Agency (Freddie/Fannie) securities that it buys through permanent open market operations.  Newly inserted in the FAQ:

What type of GSE direct obligations will the Federal Reserve purchase under the program?

…Prior to August 31, 2009, purchases were focused on off-the-run securities in that category. Going forward, purchases will include on-the-run securities in that category. This change represents a technical adjustment designed to mitigate market dislocations and to promote overall market functioning.

So, the Fed will now buy newly minted Fannie and Freddie debt (are they running out of older debt?).  Overall, not a big leap (it’s only a $200 B program), but another small step up the ponzi pyramid.  Next, expect loosening of restrictions in the much larger TALF and MBS programs. 

Gaming the Market outlines a typical day at the FRNY trading desk.

Step One (08:30am):

• gather information, macroeconomic news
• desk telephones primary government security dealers
• large banks inform the desk about their reserve needs
• NY Fed gather data to provide forecasts of reserves

Step Two (10:30am):

• call to the Treasury concerning its forecast of its balance for the day

Step Three:

• formulate the actions for the day
• forecasts from Treasury, NY Fed, and Fed BoG combined
• interventions are formulated
• trading plan is formulated

Step Four (11:15am):

• conference call links…
• Manager (and staff)
• Director of the Division of Monetary Affairs at Fed BoG
• a Federal Reserve Bank president who sits on FOMC
• proposed actions for the day are detailed

Step Five (11:40am)

• desk traders contact primary dealers and execute day’s program

Update 2:58 pm:  We didn’t expect to proven correct so quickly!  The Fed just announced it is extending TALF (Term Asset-Backed Securities Loan Facility) from Dec 31 2009 to Jun 30 2010 for newly issued CMBS and Mar 31 2010 for newly issued and legacy ABS.  And, no longer will borrowers from the TALF be restricted to using primary dealers (who have the onerous requirement of buying up Treasuries at sloppy auctions).  Now, there are TALF Agents, with four non-primary dealers named today:

• CastleOak Securities, LP
• Loop Capital Markets, LLC
• Wells Fargo Securities, LLC
• Williams Capital Group, LP

No major changes to the Terms & Conditions of TALF, though we expect eligible collateral standards will eventually be loosened again.

Update 3:15 pm:  As to the above list of TALF Agents, all but Wells Fargo appear to be minority-owned and part of the Fed’s Partnership for Progress program.  So why was Wells Fargo thrown in?  Perhaps because it is the largest bank that is not already a primary dealer.